16-02 - Toscafund Discussion Paper - BREXIT

TOSCAFUND Discussion Paper

February 2016 Britain stands up – Better to exit European Union

1

� Britain will be a better place for leaving the European Union. This

discussion paper is an explanation of both political and economical

reasons for the British people to choose to exit the European Union.

� The reality is that no discussion of the exit issue can hope to be

complete without consideration of both changing – read

deteriorating – economic fortunes across mainland Europe as well as

shifting political – read less popular – attitudes towards the EU

beyond the UK. A ‘centre’ of Europe has overreached itself; going

from a much needed economic union to one with unwelcome political

ambitions.

� The EU has not simply engaged in mission creep but extended its

‘jurisdiction’ beyond economies of scale into realms which are best

left to the discretion of national parliaments and judiciaries. It is this

pursuit of such aspects as single judicial, political and defence entities,

where the EU has gone way beyond itself, and in so doing has become

the frustratingly technocratic and bureaucratic body that it is

important to reject. The European Union restricts the freedom to

have regionally distinct rates of sales tax, which all should have the

freedom to introduce. After all, flexibility to act is a sovereign

economy’s most powerful weapon.

� We must not confuse geographic proximity with economic

propinquity. Whilst Britain may nestle alongside Europe in terms of its

physical proximity, it might as well be over in Asia given its economic

propinquity with the likes of China et al. China is now the largest

single market for British-built cars after the UK, consider as well the

surge in Chinese students attending British, in particular English,

Universities and paying very generously for the privilege. This,

alongside London being by far the preferred Western hub for Chinese

– indeed Asian-wide – financial and business service companies,

confirms how Britain is very much a flourishing economy as much of

Europe flounders.

� London’s role as the pre-eminent financial centre is being protected

on exit. For China et al, there is no plausible alternative in the

Western Hemisphere, and neither Frankfurt nor indeed New York will

win against London for this hugely important and lucrative role.

� Any attempt to ‘economically ostracise’ the UK in the event of it

departing the EU would meet with considerable opposition from

those beyond our shores whose own interests would be damaged. It

would also find objection from those endowed and empowered with

the role of achieving free trade flows. It would moreover seem

strange, indeed incomprehensible, that the EU’s Deep and

Comprehensive Free Trade Area (DCFTA) should include Ukraine,

Georgia and Moldova but not the United Kingdom, or that the EU

should have a Free-Trade Agreement with the likes of Mexico and a

Customs Union with Turkey but would drag its feet on deals with a UK

outside the EU. In short, when we are handed our voting card on the

fateful referendum day we should keep in mind that our dynamic,

strong and supply-side reformed economy has dealt us a great hand,

whilst the EU is playing with a great deal of bluff.

Author:

Dr Savvas Savouri

Research Assistant:

Luke Barnett

Contact information

Toscafund Asset Management LLP

90 Long Acre

London WC2E 9RA

England

t: +44 (0) 20 7845 6100

f: +44 (0) 20 7845 6101

e: [email protected]

w: www.toscafund.com



2

Contents page

1. Preface ....................................................................................................................................................................................... 3

2. The European Economic Union baby and its bath water ...................................................................................... 5

3. “Don’t panic” – We’ve been here before ...................................................................................................................... 6

4. Exiting the EU is not the bad trade-off some claim ............................................................................................... 10

5. Brexit; Labouring a point, PART I ................................................................................................................................... 11

6. The pound’s EU remit ........................................................................................................................................................ 15

7. Brexit; Labouring a point, PART II ................................................................................................................................. 17

8. Immigration - it’s a jungle out there ............................................................................................................................ 19

9. Food for thought on Brexit ............................................................................................................................................. 22

10. Shifting alliances ................................................................................................................................................................. 23

11. The mandates of the EU and London Assembly are Polls apart ....................................................................... 24

12. Brextimate .............................................................................................................................................................................. 25

13. Brexit would be no Greek tragedy ............................................................................................................................... 27

14. Get it out of the way, Damn it ........................................................................................................................................ 28

15. Promotion Out of the European to the world league........................................................................................... 29

16. In praise of the self-preservation society ................................................................................................................... 31

17. Chain reactions .................................................................................................................................................................... 33

18. Words on Brexit from Outside it .................................................................................................................................... 35

19. Britain’s impressive Common Wealth beyond Europe ......................................................................................... 36

20. What China crisis? ............................................................................................................................................................... 38

21. The Referendum – After It ............................................................................................................................................... 40

22. No way to build EUtopia (Issue 9 – When the clue is in the name – June 2011) ........................................ 41

23. Re: turn to a Europe of the 1930’s? (Issue 11 – Discussing the past and future – September 2011) .. 42

24. Lessons from history: 1974/5 (Issue 19 – Oh, Historic Times – February 2013) .......................................... 45

25. Lessons from history: 1983 (Issue 19 – Oh, Historic Times – February 2013)............................................... 46

26. Pathological thinking (Issue 19 – Oh, Historic Times – February 2013) ......................................................... 47

27. UK Matters (Issue 20 – On matters United – June 2013) ...................................................................................... 49

28. UKIPNOMICS (Issue 22 – TOSCANOMICS confronts... – November 2013) ..................................................... 54

29. Britain’s economic birth-right (Issue 24 – Europe in crisis again, as Britain stands out – March 2014)

.................................................................................................................................................................................................... 56

30. Drilling, noun (Issue 26 – Just lots of boring words – May 2014) ...................................................................... 58

31. A land of bread and honey (Issue 29 – My grateful nation – October 2014) ............................................... 59

32. That sinking feeling: UKIP on the rise (Issue 29 – My grateful nation – October 2014) ........................... 63

33. Referendumb thoughts (Issue 31 – EXITSTENTIAL thinking – March 2014) ................................................ 65

34. Conclusion – drawn from Issue 36 – For FX’s sake be prepared for wider currency turbulence in 2016

– December 2015 ................................................................................................................................................................ 68



3

1. Preface

Whatever one may think of the whole Brexit issue, it cannot be denied as a possibility. Nor can we ignore the

uncertainty which will distract and disrupt economic decisions ahead of the referendum. Neither will we fail to

be intrigued by whatever concessions will prove enough for David Cameron to claim “success” in his

renegotiating the UK engagement with the EU, even as some in his Cabinet see these as falling short of what

they wish to see, so as not to campaign for exit.

Some are claiming that Brexit will be averted because the EU provides superficial concessions to placate

enough UK voters that they opt for continuity. This cynical view flatters the EU and its bargaining position. We

are in little doubt that those in authority within the European Union are on the proverbial ‘back-foot’. They

are under pressure on a number of fronts. These pressures will only intensify as the asylum issue becomes

even more troublesome, and as the euro-zone’s “green-shoots of economic recovery” are trodden underfoot.

As well as increasingly wayward Nordic members, the EU technocratic ‘hierarchy’ will face growing dissent

from the likes of Hungary, Poland, Bulgaria, Croatia and other more ‘recent’ recruits. In short, in the event

Brexit is averted, those enthusiastic of our EU membership should hold back on celebrating the future of the

EU, and our place within it. The reason we make this claim is that the EU has years ahead of unstitching what

has been woven into it.

Rather than be content with economic and currency singularity, some within the EU technocracy have long

wished for the forging of even greater centralisation. In 1993 we saw the imposition of the Maastricht Treaty

which established the ‘European Union’ on ‘three pillars’: one the European communities, another Common

Foreign and Security Policy (including human rights) and the third Police and Judicial Cooperation in Criminal

Matters. The European Court of Justice (ECJ), formed in 1952, fell within the ‘first pillar’ with the 1997

Amsterdam Treaty leading to the powers of the ‘third pillar’ being transferred to the ECJ. We would argue that

it has been in pursuit of such aspects as single judicial, political and defence entities, that the European Union

has gone way beyond itself, and in so doing has become the frustratingly technocratic and bureaucratic body

that so many of us are now pushing back against. Yes, we must pare back on the EU’s mission creep. We

should, however, not forget why the EEC was formed in the first place, and not lose sight of just how

important it was in tearing down barriers to the flow of goods, services, capital and labour, and how

economically valuable this has proven to its members. The UK should be at the forefront of throwing out the

EU’s bad bath water but...

This research is a combination of a series of entirely new sections followed by thoughts penned over recent

years on the EU and the UK’s role within it. These have been reproduced as they appeared in their original

forms and should be read in the context of when they were written. If our sentiment appears to have cooled

markedly towards the UK’s ongoing membership of the EU this is because it has. As to why, we will paraphrase

Harold MacMillan by saying because of “events my dear, events”.

We would stress that for those looking for a clear outlook of how we might engage with our former EU

partners post Brexit that neither of those ‘enviable’ European nations outside the EU, Norway and

Switzerland, happen to provide templates. The plain fact is that there is no precedent of a nation leaving the

EU. We therefore have no template, not even a vague outline, for how economic relations might be post the

UK choosing to depart the European Union.

Our reluctance to commit at the moment to a “Brextimate” has everything to do with the fact that we have no

idea what degree of isolation Brexit would involve. There are, after all, a range of possibilities for how far

removed from Europe we choose to make ourselves, most notably in relation to our labour market. And there

are a range of possibilities as to how much the rump of the EU chooses to isolate the UK as a penalty for

leaving their group, particularly in terms of our ability to export to it.



4

The consequence of the UK leaving the European Union is further complicated, indeed considerably confused,

by what it might mean for the United Kingdom. After all it looks almost certain there will be marked

differences across the UK in attitudes towards continued membership of the EU. With this in mind imagine

that a small majority of those in England indicated their wish to leave but a large majority of our fellow

nationals in Scotland and Wales voted to remain. Whatever the net-effect of these numbers, such national

differences in opinion could easily re-open schisms within the UK, to the point that not only were Scottish and

Welsh nationalist lobbies significantly boosted, but even a powerful English separatist lobby emerged.

In supporting a sports team, or particular sportsman, there is an acceptance ‘we’ might occasionally face

defeat. Our backing continues through any such disappointments. As supporters of Brexit we are perfectly

aware we might not 'win' the referendum vote, but insist this would not lessen our support for a return of

those crucial sovereign powers which have been ‘collectivised’ by the European Union. Indeed, even in defeat

we know that the Brexit campaign has spurred negotiations which have returned certain notable powers.

Continuing with the football metaphor were the ‘In’ side to indeed defeat the ‘Out’, the narrower the margin

the greater the justification to continue lobbying for EU reform.

As a final word let me make clear that those demanding change in the relationship between the UK and EU are

neither bad Europeans nor irresponsible Britons.



5

2. The European Economic Union baby and its bath water

There was a time, not terribly long ago, when goods, services, workers and money could not move freely

across Europe; obstructions in place even within what was supposed to be the ‘free side’ of the ‘Iron Curtain’.

Far from this protection aiding Western Europe’s various sovereign economies, such barriers held them back.

Fortunately, obstructions to the free movement of goods and capital began to be removed, slowly at first but

then with more enthusiasm. There was initially the signing in March 1957 of the Treaty of Rome which saw the

formation from the following year of the European Economic Community comprising six members. This group

became nine in 1973, as the UK, Ireland and Denmark joined, and by 1986 comprised a dozen members. Of

course, the UK’s membership was momentarily called into question by an IN/OUT referendum in 1975, which

as we know, resulted in our continuing within the Union.

The pulling down of the ‘Iron Curtain’ in 1991 saw the emergence of a large number of new applicants keen

for membership of the ‘European Club’; although these enthusiastic entrants would have to wait for their

admission. It would not be until 2004 for the EU’s next enlargement when ten new members were added. A

further two nations acceded in 2007, in the controversial forms of Bulgaria and Romania. Most recently

Croatia’s entry in 2013 took the EU’s membership to twenty eight sovereign nations, covering a population of

over half a billion and a ‘free-to-move where it wishes’ labour force of over one-quarter of a billion; only China

and India proving larger, the US labour force by comparison a mere 155 million.

Returning to its history, efforts to forge a single market across the EU quickened as the positive economic

results of each earlier effort were felt. Such was the enthusiasm for European economic ‘universality’ that the

idea of a single currency was ‘conceived’; albeit its birth involved a rather difficult pregnancy, particularly

through the autumn of 1992, in the wake of the controversial Maastricht Treaty. Indeed, on September 16th

of

that year, sterling’s name was removed from the ‘specie’ register of donors for the new currency.

Despite the setbacks of 1992/3 the euro would be officially launched in a soft-form at midnight on January 1st

1999, and in a physical form three years later. From March 1st

2002 the euro became the exclusive currency

across what would become a progressively larger euro-zone; beginning with eleven members but now

nineteen, covering a population of one third of a billion. Indeed, from Montenegro and Kosovo, which have

‘adopted the euro’, across to Bulgaria with its euro ‘currency board’ and ever further to far flung islands such

as Cape Verdi and Comoros, the influence of Europe’s single-currency is extensive.

Rather than be content with economic and currency singularity, however, some within the EU technocracy

wished for the forging of even greater centralisation. As already noted in 1993 we saw the imposition of the

Maastricht Treaty which established the ‘European Union’ on ‘three pillars’: one the European communities,

another Common Foreign and Security Policy (including human rights) and the third Police and Judicial

Cooperation in Criminal Matters. The European Court of Justice (ECJ), formed in 1952, fell within the ‘first

pillar’ with the 1997 Amsterdam Treaty leading to the powers of the ‘third pillar’ being transferred to the ECJ.

And we would argue that it has been in pursuit of such aspects as single judicial, political and defence entities,

that the European Union has gone way beyond itself, and in so doing has become the frustratingly

technocratic and bureaucratic body that so many of us are now pushing back against. Yes, we must pare back

on the EU’s mission creep. We should, however, not forget why the EEC was formed in the first place, and not

lose sight of just how important it was in tearing down barriers to the flow of goods, capital and labour, and

how economically valuable this has proven to its members. The UK should be at the forefront of throwing out

the EU’s bad bath water but...



6

The SNP’s Brexin case: Not Proven

The SNP’s stance towards the EU is intriguing. It is

fascinating because its view towards the coming

referendum is very different from that adopted ahead of

the 1975 IN/OUT vote, initiated by the then Labour Prime

Minister Harold Wilson. Back then the SNP campaigned

for Brexit. Times change, of course, and the EU is quite

different from the EEC of over 40 years ago. Different too

is the SNP from its former self; and even if it wasn’t, we

are all entitled to change our minds.

What makes the SNP views so perplexing, to me, is that it

sees no contradiction between its enthusiasm towards

being in the European Union but its objection to

remaining within the United Kingdom. No doubt the SNP

reply will be that there isn’t anything of a contradiction,

just my ignorance. It will argue that its restored

sovereignty is wholly consistent with it being a member

of the EU. My response in turn is that if the ambition of

the SNP is for as much self-determination as possible, it

can achieve more manoeuvrability being part of an

extremely devolved UK outside of the EU, than as a

sovereign state within an EU which endeavours with

every year to tighten the ‘one-size-is-supposed-to-fit-all’

corset its members have to wear. There is, of course, a

third route the SNP could travel. And that is to support all

efforts towards EU decentralisation being made by David

Cameron. Because every power which Cameron can

return to our shores from Brussels/Strasbourg can then in

turn be devolved around the UK, not least to Holyrood.

3. “Don’t panic” – We’ve been here before

Once David Cameron has extracted the concessions from the EU that he feels are sufficient or decides he has

pushed his renegotiation efforts as far as he feels he can, he will set in motion the process of turning over to

its electorate the future of the UK’s continuing EU membership.

I, for one, believe that just as Harold Wilson did in 1975 - in their case 16 versus 7 - the majority in the present

Cabinet will align with the Prime Minister in canvassing to stay “In”, what he maintains is, a sufficiently

reformed European Union (it was of course

simply the European Economic Community

back in Wilson’s time). Even if I am right and

we are encouraged by the leaders of all

political parties (bar UKIP of course) to vote to

stay ‘In’, I have to accept that ‘Out’ is still

possible with a probability which will confuse

rather than be clarified by opinion polls. This

will ensure that uncertainty will hang over the

outcome; made more unsettling because of the

confusion over the economic implications of an

‘Out’ vote. And there can be no denying such

uncertainties will have ever more noticeable

consequences to our economy in the period

ahead of the referendum. The uncertainty will

influence household and business decisions

over whether and where to invest, and

decisions over when, what and how much to

consume. These will be impacted of course by

how much capital markets choose to buffer

sterling in the face of having to deal with

contingent outcomes, with uncertain

consequences. And the more uncertain the

outcome the more insecurity there will be in

the UK’s economic outlook and, of course, the

price of assets, goods and services will be

affected. There will, moreover, not only be the

uncertainty of those within the UK but those

outside looking in. All this said, I would recommend not falling into the trap of exaggerating the actual ‘harm’

uncertainly does to our economy. After all, the UK economy performed remarkably well, considering it was

clouded in uncertainty over the outcome of the 2015 General Election. The UK economy also performed

perfectly well when there was the question over Scotland’s potential to break from the Union.

Some will no doubt claim we will never know how ‘good’ the economy might have performed were it to have

been free of election and referendum uncertainties. My reply is that we are surrounded by uncertainties and

continue by and large to behave calmly. Indeed, what we do know for certain is that during both 2014 (which

the Scottish Referendum was held in) and 2015 (the middle of which we had the General Election) the UK

recorded one of the European Union’s strongest rates of GDP growth, indeed the best across the G8, as well

as an impressive improvement in job creation and strong real estate markets.



7

Chart 1: England vs Scotland; Employment levels Chart 2: England vs Scotland; Unemployment rates

Source: ONS, Toscafund (Red lines denote the announcement and vote of the Scottish referendum, the grey lines denote the dissolution of Parliament and the

General Election)

We can see from charts 1 to 2 that the UK labour market performed generally well through the ‘uncertain’

periods ahead of Scotland’s Independence Referendum on September 18th

2014 and the General Election on

May 7th

the following year. The charts which follow reveal how capital markets ‘priced’ in the outcomes of

these uncertain events. On the one side we see how the pound was treated on foreign exchange markets –

chart 3 - and on the other, how Gilts performed in money markets. Whilst one cannot say how events would

have unfolded ceteris paribus had there been neither a closely fought Referendum, nor a, no less contentious,

General Election, the graphics hardly strike one as capital markets taking fright and fleeing the UK. Some will

no doubt claim that Brexit, or rather its possibility, involves a wholly different set of uncertainties for both

employers and investors. My reply is that if the UK’s labour market were to soften it would do so from an

impressive level of strength. And if capital markets do sell down sterling, this itself will hardly prove

unwelcome to those across the economy, from manufacturers across to the leisure and indeed property

sectors, who will be able to exploit a more competitive and affordable pound.

Chart 3: Sterling’s performance against the $ & € Chart 4: 5 year Government bonds

Source: Bloomberg, Toscafund (Red lines denote the announcement and vote of the Scottish referendum, the grey lines denote the dissolution of Parliament and

the General Election)

If we consider the yield performance of 5 year Gilts during the uncertainty surrounding Scotland’s Referendum

on Independence and the General Election we see little discernible difference from how United States

Treasuries performed through the same periods. As for ‘underperforming’ comparable German Bunds one

should notice the ECB’s rate cut as the explanation, not some increased risk-aversion towards UK Government

debt (chart 4).

I am not suggesting that uncertainty ahead of the referendum will not influence economic activity within the

United Kingdom; I have already written earlier that, of course, it will. What I am simply asking is that ahead of

2.5

2.55

2.6

2.65

2.7

2.75

20

21

22

23

24

25

26

27

28

29

30

2011 2012 2013 2014 2015

Mil

lio

ns

Mil

lio

ns

England Scotland

4

5

6

7

8

9

2011 2012 2013 2014 2015 2016 2017

%

England Scotland

0.0

0.5

1.0

1.5

2.0

2.5

2003 2005 2007 2009 2011 2013 2015 2017US dollars per Sterling Euro per Sterling

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

2011 2012 2013 2014 2015 2016 2017

%

UK Germany US ECB Rate



8

the referendum we please keep our heads when it seems that all about us there are those losing theirs. Let

me try to explain why the pricing in of risk will actually provide its own rewards within the UK economy.

Consider the plight of the pound whose rate of exchange against the dollar and euro has been slipping of late;

against the euro down from buying 1.42 to 1.3 in the space of six weeks. Now, if we assume sterling weakness

continues because of Brexit uncertainty this will come as a welcome development for those across the UK who

will benefit from a more competitive currency, particularly in relation to neighbourly rivals across the euro-

zone (from exporters of goods to those competing for leisure and tourist custom). Of course each dip in

sterling will have inflation implications. Well, at a time when the greatest fear is being mired in deflation this is

hardly a bad thing. A weaker pound also raises the intriguing prospect of UK assets becoming more affordable

for those with an eye on them from overseas, and either, convinced that the probability of Brexit is being

exaggerated and/or its unfavourable economic consequences to the UK overstated. Those with this mindset

could only welcome any downwards re-pricing of UK real estate and sterling assets more widely since this

would provide them with an ever more affordable acquisition. As for the Monetary Policy Committee (MPC), I

refuse to accept it will vote for a base rate rise until the Brexit question has been answered. I am reminded at

this point of two fateful events for the UK in 1992 (I had become chief UK economist at the stockbrokers

Hoare Govett from November 1991).

Firstly, there was the ‘surprise’ General Election win for John Major over Neil Kinnock. Such was the

expectation of a Labour victory back in 1992 that sectors, notably the privatised utilities, were ‘sold-off’ since

they were seen as targets of a new Government whose Chancellor would be the very much ‘old Labour’ John

Smith. As it was, we woke on April 10th

to find opinion polls had got it wrong (plus ça change). When markets

closed for the day on the 10th

those sectors and particular stocks which had been sold-off ahead of the

General Election recorded spectacular revivals. In fact the 5.59% rise in the FTSE 100 on that day remains one

of its best ever percentage improvements.

This brings me to the second memorable event of 1992. When the London markets closed on September 16th

we went home expecting to wake to a base rate of 15%. As it was, in the early evening Norman Lamont stood

in front of the Treasury to announce the pound’s membership of the Exchange Rate Mechanism (ERM) had

been ‘suspended’, and so too the second (300 basis point) rate rise which he had earlier announced in the

Government’s efforts to forestall just such an exit (not to forget the tens of billions of our foreign reserves

squandered to that purpose). Now what makes this eventful day so very memorable is that having at first

been branded ‘Black Wednesday’, it instead quickly came to be remembered as ‘White’. This was because on

September 16th

the UK escaped from the constraints imposed on it by the Economic and Monetary Union

(EMU – for the record the FTSE 100 rose 4.44% on September 17th

, high up in the table of best ever

percentage moves). It is true that almost all ERM pegs were re-set in the weeks which followed September

16th

, but only the pound escaped entirely from the ‘mechanism’ which would go on to forge the euro (how the

likes of Spain, Greece and others in need of currency freedom now wish they had escaped with the UK). The

UK’s ERM exit meant a more competitive pound as well as a progressive and much needed cut to the base

rate, or as we knew it then, the minimum lending rate. We saw this reduced to 9% on September 22nd

with

further cuts thereafter, all of which contributed to reviving a UK economy, which had been wallowing for four

years, not least because the monetary stimulus it so needed could not be administered. Quite frankly, not only

had the UK lost self-determination over monetary policy because of the constraints imposed by membership

of the ERM, but this mechanism was made all the more inflexible and insensitive not only to the needs of the

UK but others within it, because it was stubbornly serving the interests of a recently re-unified Germany (for

the record within a handful of years the ‘flexible’ pound would buy more than the 2.95 Deutschmarks which

the ERM had ‘dictated’ should be its central rate, chart 5).



9

Chart 5: Pounds per Deutschmark before & after ERM EXIT Chart 6: Real GDP, UK versus Germany and France

Source: Bloomberg, IMF, Toscafund

There are, in my mind, three clear lessons from September 1992. One is that in a period of political-economic

uncertainty markets naturally factor in the perceived ‘worst’ outcome; and in so doing they hit the currency

and other asset prices. However, if/when this worst-case outcome is not realised the affected asset prices

rebound in an impressive relief rally, resulting in a ‘hockey-stick’ move. Another lesson is that flexibility to act

is a sovereign economy’s most powerful weapon. The third lesson is that clearly signed ‘EXITS’ exist in

enclosed spaces for a very good reason; they help you escape when it is necessary to do so. And as we are

always being instructed, if we do need to evacuate it should be done in as orderly a way as possible; or put

simply, please “Don’t panic”, Britons have a long history in escaping whenever Germans are being

unreasonable in trying to keep them restrained.

Postscript: This is now personal

When in my economic writings I express forthright views; every effort is made to consider the pros and cons,

the positives and negatives and then come to a net assessment, one which I hope is considered to be

considered.

As with all other contentious topics, my writings on the issue of the UK and its place within the EU have been

impersonal and purely as a professional economist. In this vein and to be perfectly clear, I do not believe the

EU as a barrier-free economic bloc is too large, in fact I’d like it to grow, and one day Russia and Turkey

welcomed into it. This said, I very much believe the EU has not simply engaged in mission creep but extended

its ‘jurisdiction’ beyond economies of scale into realms which are best left to the discretion of national

parliaments and judiciaries. As with so much, the United States provides a template for the EU; a template

that is for the limits to which ‘Federalism’ should extend. Yes, the US has a Federal Government with a

President and two elected chambers, as well as a Supreme Court and single currency. However, even the most

cursory inspection of how individual States operate reveals how their fiscal, legislative, judicial and penal

systems are quite different. In fact, the wearing of seats belts is required by law in some states, for example

Connecticut, whilst in others, New Hampshire for instance, drivers are free to drive unharnessed.

For my part, I wish to see the EU focus its efforts on ensuring we are free of barriers to the free-flow of goods,

services, labour and capital and so foster healthy competition between member nations as well as

encouraging rivalry within sovereign borders. For instance, this means not restricting the freedom to have

regionally distinct rates of sales tax, something which I would argue is what we should have the freedom to

introduce in the United Kingdom. Whilst the EU needs fixing, its existence is a great improvement on what

existed before it. However, whilst I much prefer ‘Fixit’ over ‘Brexit’, if we do not get the former then I say

‘Feckit’.

0

2

4

6

8

10

12

14

16

2

2.2

2.4

2.6

2.8

3

3.2

1991 1992 1993 1994 1995 1996 1997 1998

Ba

se r

ate

(b

lue

lin

e)

+6

Central rate

-6%

-8

-6

-4

-2

0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

% ch

ange

, yr-

on-y

r

United Kingdom Germany France



10

4. Exiting the EU is not the bad trade-off some claim

Much is being made of how Brexit could mean the erection around the UK of trade barriers as a punitive

response from the remaining EU members. Indeed, much is made of ‘the fact’ that whilst Norway is outside

the EU it trades relatively freely with it, ONLY because the parliament in Oslo has had to negotiate and sign

many hundreds of bilateral trade deals over a protracted period. The inference is the Norwegians have ‘signed

up’ and are ‘paying up’ for the commercial privileges of EU membership without having a voice in how it is

run; we are told, in effect, that Norway has made a poor trade-off.

Those who make the ‘poor trade off’ claim towards Norway seem to forget that on two occasions in 1972 and

1994 Norwegians have had the freedom of voting in referendums on whether to join the EEC and EU

respectively. On both occasions Norwegians - amongst the most educated and free-thinking people in the

world - opted to remain outside the EU. Indeed in view of recent events one imagines Norwegians are even

further away from wishing to enter the EU.

Those defending Brexit will point to the fact that whilst outside the EU Norway is a flourishing member of the

European Free Trade Area (EFTA). This is not a place for a long history of efforts to achieve barrier-free global

trade. This said, I need to reiterate that were the EU to punish the UK for “Brexitting” by sanctioning it with

trade barriers, those in Brussels and Strasbourg would face the wrath of the World Trade Organisation (WTO)

for isolating one of the world’s largest economies.

The WTO was formed in 1994 succeeding the General Agreement on Tariffs and Trade (GATT) following the

Uruguay Round. The WTO’s powers greatly increased from 1999, and in December 2001 it finally agreed that

China fulfilled conditions for entry into its free-trade region. The idea that Britain should be sanctioned for

Brexit would not only sit badly with the WTO but with many others. Ireland for one would hardly welcome

such a move given how closely it trades with the UK. Neither would those Japanese, German and numerous

other corporate giants with sizeable operations across Britain.

The reality is that any attempt to ‘economically ostracise’ the UK in the event of it departing the EU would

meet with considerable opposition from those beyond our shores whose own interests would be damaged. It

would also find objection from those endowed and empowered with the role of achieving free trade flows. It

would, moreover, seem strange, indeed, incomprehensible that the EU’s Deep and Comprehensive Free Trade

Area (DCFTA) should include Ukraine, Georgia and Moldova but not the United Kingdom, or that the EU should

have a Free-Trade Agreement with the likes of Mexico and a Customs Union with Turkey but would drag its

feet on deals with a UK outside the EU. In short, when we are handed our voting card on the fateful

referendum day we should keep in mind that our dynamic, strong and supply-side reformed economy has

dealt us a great hand, whilst the EU is playing with a great deal of bluff.

Postscript: Private suffrage

How we vote individually should always remain a very private affair; what counts, after all, is the overall count.

If once the votes have been counted “Brexiters” are in the majority our former EU partners should respect the

decision and not dismiss it as some capricious decision but one taken with a great deal of deliberation on the

part of Britons. Indeed if Brexit is indeed the referendum outcome the EU should ask itself why one of its

members was more willing to leave, with the inevitable uncertainties associated with doing so, than remain. In

a world where ‘feedback forms’ seem ubiquitous the EU should take heed of Brexit as a very negative review

from one of its most important customers. Rather than wait for others to follow, the EU should be galvanised

by Brexit to make every effort at providing the reforms which might have avoided such a dramatic outcome.

The EU should quite simply focus its efforts on enticing the UK to return to a reformed EU.

In the event that Brexit is avoided the EU should be careful of taking on a celebratory mood and becoming

complacent, because its structural economic problems will not have been solved. The EU’s fault lines are not

to be found around the UK but across Continental Europe; economic and demographic. Whilst it will be better

able to deal with these with the UK as a continuing member, these need dealing with urgently before they

create the economic shocks, I am convinced, are unavoidable otherwise.



11

5. Brexit; Labouring a point, PART I

In what follows I will try to peer into a Brexit future. I will, however, confine myself to issues which I deem to

be linked to the ‘economics’ of the UK no longer being within the European Union. I will also assume, and this

is a considerable assumption, that Brexit does not raise anew the spectre of a referendum on Scotland’s

independence with all the economic uncertainty this would usher in again.

Let me make clear from the very start that neither of those ‘enviable’ European nations outside the EU,

Norway and Switzerland, happen to provide a template for the terms with which the UK would economically

engage with that Union in the event it was no longer a member. The plain fact is that there is no precedent of

a nation leaving the EU. We therefore have no template, not even a vague outline, for how economic relations

might be post the UK choosing to depart the European Union.

Were the United Kingdom to leave it, there is the issue of how those guarding the EU, and keen to ensure no

other escape attempts, might penalise it, as a lesson to others. As I said, given there is no precedent, there can

be only guesswork as to how our lives might change in the wake of Brexit. With this admission in mind, let me

by my admission try to guess how life would be for an average Briton, were we outside the EU.

Can I start by considering what has become the EU’s most significant creation, the Single Labour Market (SLM)

which allows us all the freedom to work and live across all twenty eight economies (coming and going you

must still show your passport of course because the UK is outside the Schengen Area, which by the way is

shrinking in the wake of the asylum crisis-cum-fiasco).

Now, I think it not unreasonable to assume that the UK cannot depart the EU without leaving the SLM. Indeed

for many promoting Brexit, escaping the SLM is their overwhelming desire. Suppose then we will find

ourselves out of it.

For a Briton working across the EU - at the last count in 2011 there were 407,000, just over half in Spain,

Ireland and Germany - that would mean a change of circumstances, as much as it would for an EU national

currently labouring in the UK (of which there are 2.1 million). The likelihood is that we would see a

considerable exchange of labour as British nationals were forced to return, with EU nationals making the

journey in reverse (with this effect extremely noticeable across the Irish Sea). Such ‘repatriation of

populations’ could not fail to have considerable economic consequences. Monetarily one could see a

significant impact on property values and wages within the UK as the latter rose but the former fell. Why?

Because there can be little denying that those departing and those returning will not balance each other out;

not in numbers, and not in their age and socio-economic make-ups. Of course there might be an agreement to

provide temporary leave to stay for some EU nationals in the UK and Britons across the EU. One wonders how

this might go down with enthusiastic “Brexiters”. In addition we would have to assume an immediate stop to

new arrivals until new protocols had been established for both. Let me be forthright. If you are a landlord,

Brexit will hurt. If you are a tenant, it promises to serve you well, if only in terms of competition for your

tenancy and rental payments. If you are a homeowner, Brexit will not be good for your property wealth, and if

you also happen to have a mortgage, your fortunes will be harmed all the more by less generous borrowing

costs. Turning to the labour market, if you have been competing for work with arrivals from the EU, you can

welcome Brexit. For their part employers will have to get used to less choice when trying to find staff, as well

as more demanding overdraft costs. Am I being unfair? No, if one looks carefully at the arguments for Brexit,

less competition for work is clearly one of its strands. So what if wages rise, these are wages paid to Britons,

and anyway, so the argument goes, we need real wage growth. Well, I would not assume that we would see

real wage growth since there is every likelihood that Brexit would lift general inflation, doing so through a

number of channels.

Let me continue on the theme of population flows.



12

The number 407,000 above did not count the 927,000 Britons who have ‘retired’ or reside whilst not working

across the EU, and continue to hold only a UK passport. For these, right to residence is not assured and there

is a chance that a proportion would have to return. Some might see this as favourable for property demand

and the wider economy, as their spending would be returned with them. Others will claim that many ex-pats

who have ‘retired’ will return and add a burden to the NHS and care system. Of course there will be those

arguing that the British public sector will, on balance, benefit being unburdened by those from across the EU

taking advantage of it. My concern is that EU nationals are far more likely to occupy roles as staff across the

NHS than beds. Similarly EU nationals are just as likely to staff our schools, as their children are to occupy class

seats. Indeed, studies have claimed to show that improvements to child literacy and numeracy recorded

across London over recent years have been due largely to the arrival of foreign-born children and those born

to non-British parents (we must also separate arrivals who cite asylum seeking as their motivation from those

who do not use this much abused explanation).

Let me end this short section with the important consideration of how ‘The City’ - the metonym for all parts of

London involved in activities across financial markets, banking, insurance etc - might fare were the UK outside

the EU.

On the one hand we would be free of the persistent threat of ‘heavy handed’ EU financial market regulation.

On the other of course there is the threat that many of those firms operating across ‘The City’ might relocate.

For my part I see London’s role as Europe’s pre-eminent financial centre as being protected regardless of

Brexit. For China et al., there is no plausible alternative for what I am convinced will become a significant

presence in the Western Hemisphere, and neither Frankfurt or indeed New York will win over London for this

hugely important and lucrative role. Indeed, I am sure London will prove China’s preferred western hub across

multiple sectors which need to operate continuously over any 24-hour period, and see this as the case

regardless of our continuing within the EU. As for who will work in these new operations, the answer is us,

those Europeans and others who apply through whatever work-visa system is instituted post-Brexit, and

crucially Chinese nationals themselves, who I have no doubt will be fast-tracked in.

Some will of course see my not simply sanguine but very much positive view for ‘The City’ and London more

generally, as inconsistent with the monetary concerns I aired earlier over Brexit. I see none. What I would

make clear is that whilst London can largely brush aside Brexit, much of the rest of the UK does not have its

robustness. The simple truth is that economically at least the best option for the UK ‘AS A WHOLE’ is

remaining within a reformed EU, reforms which we push for and many others across it come to very much

thank us for, and thank us moreover for staying in.

Much has been written and spoken about the impact of “unfettered” EU immigration on the UK labour

market. The upshot of the argument is that foreign workers have and continue to “crowd-out” Briton’s from

their ‘rightful’ place in work. This argument is however not entirely consistent with the data (chart 7 and 8).

True, more foreign-born workers than ever before are employed across the UK. No less true however the

overall unemployment rate has fallen in tandem with this increase (chart 10).



13

Chart 7: UK Employment , UK born workers Chart 8: UK Employment, workers born overseas

Source: ONS, Toscafund

What then of the concern that job opportunities for native Britons are being squeezed by the seemingly

unrelenting arrival of job seekers from across the EU? Well, this concern does not seem to be supported by

vacancy data (chart 11), which has shown an impressive increase; indeed a frustrating increase for a British

business keen to fill a role. What of the idea that wage growth across the UK has been muted by the

competition for work from those arriving from across the EU. Well, whilst wage growth has certainly been

muted, so too has general inflation. What then about real wage growth? This is contentious but there is a

strong argument that the CPI has been understating inflation by not capturing the growth of discounters

across the UK and their extremely competitive pricing. In fact, if we use the price deflator which the ONS

calculate and compare this with wage growth across the economy we see real wages have in fact been rising,

see chart 12. Moreover, if we assume, not unreasonably, that proportionally more native Britons are landlords

than foreign born residents, then the increase in private sector residential rents has been to their benefit as

property or as it is rather unfairly known, “unearned” income.

Chart 9 shows there has been a noticeable increase in the number of Bulgarians and Romanians issued with

National Insurance numbers since 2014, when they were able to work in the UK without restrictions. This said

there was an equally noticeable upwards inflexion in NI numbers given to those from long established EU

members (to which I have included Poland). I would insist that these upwards shifts reflect in a large part the

attraction of the UK economy at a troubling time for mainland Europe. And whilst Europe’s economic troubles

can only be made all the worse by losing prime-age professional and artisan workers, the UK can only benefit

by their arrival.

Chart 9: National Insurance registrations for EU nationals Chart 10: UK unemployment rates compared**

Source: ONS, Toscafund *2015 – estimated last quarter; and EU15 excludes UK – **Mark Carney’s 7% threshold when considering raising rates is represented with

a red dotted line

25.0

25.2

25.4

25.6

25.8

26.0

26.2

26.4

2002 2004 2006 2008 2010 2012 2014 2016

Mil

lio

n

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2002 2004 2006 2008 2010 2012 2014 2016

Mil

lio

n

0

50

100

150

200

250

300

0

100

200

300

400

500

600

700

800

900

1000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Th

ou

san

ds

Th

ou

san

ds

Total EU15* and Poland (rhs) Bulgaria and Romania (rhs)

0

2

4

6

8

10

12

2002 2004 2006 2008 2010 2012 2014 2016

%

UK South East East Midlands Yorks & the Humber London



14

Let me spend a moment reflecting on the – controversial - accession of Bulgaria and Romania to the EU back

on January 1st

2007. Amongst its many other ‘opt out’ provisions the United Kingdom exercised a seven year

transitional arrangement whereby Bulgarian and Romanians could not move freely to our shores. The expired

of this on January 1st

2014 saw Keith Vaz, a man never to miss a chance to grandstand, greeting rather

bemused arrivals at Luton airport. Interestingly, Vaz was accompanied by the then Tory MP Mark Reckless,

who would go on in a nominative deterministic way to defect to UKIP and loose his seat at the recent General

Election. Whilst the number of Bulgarians and Romanians who have since entered the UK has not been

inconsiderable (see chart 9) a casual inspection of our labour market shows that our unemployment rate and

claimant count has not only failed to increase but fall across practically all regions. Broadening my thoughts to

arrivals from the entire EU, both long-standing members and more recent joiners, I am minded to remind

those opposed to large-scale economically motivated immigration that for the vast majority these provide

both hands to work and mouths to eat; lifting production and lifting consumption and so generating economic

growth. As for those arriving from overseas for full-time study, I have long maintained that their numbers

should not be included in net-migration figures, since their motivation is quite different from economic

migrants, as indeed is their positive engagement with the UK and their numbers only confuse the ‘migration

debate’.

In short, those who object to our membership of the EU on the grounds that it has served the UK labour

market badly need to uncover data which makes the point because I cannot find any. Of course there will be

an argument that our labour market would be EVEN stronger were we not part of the SLM. Well, without

pulling rank, my PhD thesis from the late 1980’s focused on the UK labour market in pre-SLM days, and I

remember how badly it functioned; with stubborn wage and price growth and high interest rates as a result.

There was also wide unemployment dispersion across the UK which widened to such an unprecedented extent

that it raised considerable social tensions and strife between the ‘fortunate’ south and depressed north. Those

who wish to see us out entirely from the SLM ought to be careful of what they wish for.

Chart 11: Vacancies across the United Kingdom Chart 12: Real wage data


Returning to the present and more important the outlook I have misgivings that our labour market will soften.

This said I will make three points. First, our jobs market will not be alone across Europe in softening and would

be doing so from a much stronger point than almost any (Germany’s labour market flatters itself by the

inflexibility to make timely redundancies). Secondly, part of the slowing growth I expect across the UK

economy, although not to be exaggerated, will be explained by uncertainty over our EU future. Third and most

importantly, the prospects for our labour market would NOT be improved by being outside the SLM, but

rather worsened. Inward migration when motivated by the wish to work is never a bad thing for any economy.

And as Germany and nations et al. across Northern Europe fill with asylum seekers, watch as hard working

nationals across these economies try to relocate to the UK to escape what threatens to become an

increasingly fraught continent.

400

450

500

550

600

650

700

750

800

2002 2004 2006 2008 2010 2012 2014 2016

Th

ou

san

d

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2002 2004 2006 2008 2010 2012 2014 2016

ye

ar

on

ye

ar,

3m

ma

, %

Real Wages (using CPI) Real Wages (using CPI allowing for discounting)



15

6. The pound’s EU remit

Imagine being one of the estimated 2.1 million European Union nationals working in the UK. Suppose still

further you have ongoing responsibilities in ones’ homeland. The responsibility in question might be a liability,

say a mortgage or a commitment maybe to build a property for when one returns. It might instead - or also -

be some family obligation, maybe a financial responsibility to ones parents and/or wife and children ‘left

behind’. In each case we are certain to see regular remittances as sterling income is translated into say euro’s,

zloty’s, leu’s or any of the other six units which remain sovereign currencies within the European Union. Now,

as the pound strengthens against the currency of another EU nation this acts favourably on remittances; few

pounds are needed to make a specific transfer in the home currency, or the same amount in sterling will

generate a larger remittance. In short, consider ever percentage point rise in the value of the pound relative to

another EU currency as equivalent to a 1% pay increase for a migrant worker in the UK for whom that currency

is the one he has obligations. Matters of course work in reverse when the pound slips in value. What is my

point? If concerns over Brexit do indeed drag sterling down against the euro some will see this as a monetary

discouragement to economic migrants from across the euro-zone coming to Britain. Those keen to see fewer

arrivals will welcome this, pointing also to the competitive benefits of a weaker pound to our exporters and

domestic leisure sector. Others will by contrast be disappointed by any such discouragement a weak pound

will have, arguing that the inflation associated with a weaker pound hardly favours improved competitiveness

whilst fewer job seekers will encourage wage inflation. I’d like to make a point that the mechanics of currency

moves on economic migration are more complex than outlined thus far.

In any general assessment of how its movements may influence economic migration one must consider the

pound’s performance against the Zloty of Poland, forint of Hungary, Leu of Romania and the other six

currencies operating within the EU. Now, a casual inspection of their exchange rate will show that some of

these have been weakening against the euro, and so in fact falling also against the pound over recent years;

and so boosting the remittance effect from working in the UK for Poles etc., chart 13 to 16.

Returning to the euro any strength it enjoys against the pound means that those considering relocating to the

UK can buy our assets more cheaply if they desire to do so, and means their euro savings will go further. If

Brexit concerns put downward pressure on the sterling price of home prices or residential rents this too will

hardly go unwelcomed by those across the EU keen to relocate to the UK for work.

Earlier I mentioned the possibility that EU nationals working in the UK might have mortgages or more general

loans which needed servicing ‘back home’. Well, the servicing of any such debts can only have been eased

over recent time by lower interest rates, either through the conventional process of their being cut - in some

cases into negative territory - or through quantitative easing (of which I suspect more is needed). This can only

have helped mitigate the ‘remittance effect’ for any future weakness in sterling against the euro.

Chart 13: Polish zloty per pound sterling Chart 14: Hungarian forint per pound sterling

Source: Bloomberg, Toscafund

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2002 2004 2006 2008 2010 2012 2014 2016 0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

2002 2004 2006 2008 2010 2012 2014 2016

16% 17%



16

It's all about comparing and contrasting

Few can reasonably challenge the claim that; rarely are our actions based on assessments of absolutes. We

instead reach decisions after an assessment of how the alternatives measure up to one another. I am not

claiming we are always conscious of performing a comparative analysis, or that the choice made is fully

informed.

This is not the place, and I am not the person, to reflect on how we weigh up our options and how these are

perceived. What I will do is point to how comparative analysis is at work in the UK, quite literally. Just consider

the dispute between the Government and junior doctors over efforts to impose a new contract. Now I have no

judgment on this, other than to point to the talk of an exodus amongst our young doctors as they choose for

instance to journey across to Australia or Canada in search of better working conditions. The argument here is

that the new contract tips the balance in favour of a not inconsiderable move. It may well do for 'our' young

doctors but what has been missed is that each day medics from across the EU are making the same

comparative assessment. In their case the option of remaining where they are or relocating to the likes of

Australia, New Zealand or Canada, is augmented by the possibility of moving to the UK, where incidentally

they do not face the restrictions which exist when looking to move for work beyond the EU's single labour

market. I have already noted (see section 23) how arrivals from overseas have transformed - and for the most

part improved - the UK's dental services.

The simple truth is that if the new contract for junior doctors is indeed inferior to what it replaced, across parts

of the EU it is better than what is on offer. To repeat, I am not making a subjective assessment simply pointing

to the reality that not only are things relative they depend on ones perspective, and from the vantage point of

much of the European Union the prospect of working in the United Kingdom is a great deal more enticing than

staying put.

Chart 15: Romanian leu per pound sterling Chart 16: Bulgarian lev per pound sterling


Let me close this section by making the point that for many across the European Union the ‘draw’ of working

in the UK is not simply our ‘in-work benefits’. There is the fact that work opportunities are superior in the UK

than across most of the EU. And as I hope to have shown that the ebbs and flows in the pound against the

nine other currencies of the EU has a series of effects on attracting and retaining EU economic migrants.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2002 2004 2006 2008 2010 2012 2014 2016

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2002 2004 2006 2008 2010 2012 2014 2016

19%

23%



17

7. Brexit; Labouring a point, PART II

As an empiricist I strive for statistically ‘robust’ conclusions. The problem is that in my years as an empiricist I

know that such outcomes are not always possible. On these occasions one is reduced to partial analysis, and

what follows should be read as just such an instance.

There are those who demand Brexit because they wish to see us exit the Single Labour Market. Their

argument is invariably to claim that where EU arrivals are most concentrated suffers a higher rate of

unemployment, as either ‘THEY’ claim ‘OUR’ benefits, or WE Britons are forced onto the dole. Well, a partial

analysis of the data does not support this claim. Let us first look at where across the UK there has been the

largest concentration of ‘settlers’ from across the EU (heat maps 1 and 2). Next compare this with rates of

joblessness. This admittedly simple correlation does not reveal an unfavourable positive link, but in fact a clear

downwards slope (charts 17 and 18). Indeed, London being an ‘outlier’ can be explained both by it being The

Capital as by the concentration within ‘The City’ of EU banks and insurers and so the many nationals they

employ here.

Map 1: 2014 EU population as % of overall Map 2: 2004-14 relative % growth in EU nationals

Source: ONS, Eurostat, Toscafund (relative growth is measured with formula = (2014 EU pop - 2004 EU pop) / 2004 Total Population

EU pop, %

2.0-2.99

3.0-3.49

3.5-3.99

4.0-4.49

4.5-4.99

5>

3.7 4.6

11

4.6

3.8

4.4

3.4

3.3

2.0

2.6

3.4

4.6

8.1

Comparable

figures for:%

Norway 6.0

UK 4.8

Spain 4.3

Germany 3.8

France 2.2

EU population

growth, %

1.0-1.99

2.0-2.49

2.5-2.99

3.0-3.99

4.0<

2.5

2.6

2.2

2.4

2.3

1.6

2.7

7.7

3.2

2.5

1.3

3.2

n/a



18

In the eyes of the beholder

John Maynard Keynes, the brilliant economist and political scientist, used a wonderful analogy to explain how

we should make decisions. In his seminal work “The General Theory of Employment, Interest and Money”

(1936) Keynes asked readers to imagine that a newspaper held a beauty contest, one where a prize was

available only to those who could successfully identify the candidate in the pageant who was most popular

with other readers. He argued that we were confronted with such decisions all the time, and in such ‘contests’

we had to put aside our personal preferences. To repeat, we have to judge not who we find attractive but who

we judge the bulk of all other judges do. What is my point? Over recent years many, many hundreds of

thousands of nationals across the European Union have cast their vote for who they consider the economic

beauty across it. They have done so by EXITING their homelands to relocate to the UK. If they are EXITING their

part of the EU in favour of the UK, surely this tells us something about how we should vote on June 23rd

?

Chart 17: EU regional settlers and unemployment, 2004 Chart 18: EU regional settlers and unemployment, 2014

Source: ONS, Toscafund (The regression lines, in blue, do not include London data point)

Returning to the general downwards slope some may argue that this is because of ‘extraneous’ factors and

needs more comprehensive econometric analysis (for the record my Bachelor and Master degrees were both

in this field of study). This said which control factors would one choose to isolate the ‘migration’ effect on the

UK jobs market to show there was an adverse effect? What about causality? Do high unemployment regions

deter migrants as areas of high employment rates attract arrivals? (For the record my thesis was in this area).

As well as empirical challenges there are those which one might describe as philosophical. How can we be sure

how the UK macro-economy might look were we never to have been in the SLM? Would general inflation have

been higher, and if so, the natural rate of unemployment too? Such counter-factual arguing abounds of

course, and can prove interminable. All I will say is that every sinew of me as an empirical economist tells me

that the UK’s membership of the SLM has, on balance, served our economy extremely favourably.

What might Brexit do to the course of the UK’s fiscal devolution? On the face of it the answer would seem to

be that Brexit could only add speed to the pace of devolution. The reasoning here is that it would remove the

shackles which the EU imposes on its members, notably that they cannot levy regionally distinct VAT. The

problem is that as much as fiscal devolution across the UK can do without EU restrictions, it is no less true that

to prove a success, devolution cannot do without those EU workers who are arriving and dispersing around

our country in ever increasing numbers. I will argue that if we are to Brexit, and somehow hermetically seal

ourselves, our economy will suffer considerable discomfort. Of course this will be lessened proportionally to

how open we keep our labour market to those across the EU keen to work here. My point is that if we are to

impose restrictions on access to work we should strive to negotiate for these as a condition for remaining in

the EU, as indeed we should demand our freedom to regionally differentiate VAT. Do we have such

negotiating power? I for one am convinced the UK has a great deal of leverage.

North East

North WestYorks & the Humber

East Midlands

West Midlands

East South EastSouth West

Wales

Scotland

Northern Ireland

London

0

1

2

3

4

5

6

7

8

9

10

0 2 4 6 8 10 12

Un

em

plo

yme

nt

rate

, %

EU population share, % of total

North East

North West

Yorks & the Humber

East Midlands

West Midlands

East

South EastSouth West

Wales ScotlandNorthern Ireland

London

0

1

2

3

4

5

6

7

8

9

10

0 2 4 6 8 10 12

Un

em

plo

yme

nt

rate

, %

EU population share, % of total



19

8. Immigration - it’s a jungle out there

The impact on the UK economy caused: by the European Union’s single labour market; those entering from

beyond the EU to work or study full-time; and by asylum seekers, has blended into a single ‘immigration flood’

in the popular consciousness, this despite very clear distinctions in what those arriving under these headings

bring to the UK. I would like to very briefly consider each stream quite separately. Let me begin with all those

keen to fulfil full-time study in the United Kingdom whether they originate in the EU or beyond.

One has to accept there will be those using their applications to study full-time as a smoke screen to enter the

UK by subterfuge with no interest other than to seek work. I would make the point that the numbers involved

should not be exaggerated, or the checks in place to screen them underestimated. Some will of course ‘get

through’. The majority of these clandestine arrivals will work in the grey economy across which their

‘contribution’ to the UK will be in providing invariably ‘cash in hand’ labour below the minimum wage. As to

whether they are a burden on us I will simply say that those who deny an economy can exist without a grey

element are in denial of economic reality. Let me move onto the vast majority of those arriving who genuinely

do desire to study full-time, see chart 19. The contribution to the UK economy of this group is far reaching. It

reaches spatially far and wide across our country, and it is far reaching across sectors. Full-time foreign

students in the UK have provided one of the strongest growth elements to our private rental sector and have

generated net positives effects in the demands they place on our Higher Education Institutions, many of which

have become veritable construction sites over recent years to accommodate growing numbers of generous-

fee paying students from overseas. In the event of Brexit or in any reappraisal of how open our borders need

to be, we must remain very much open to those keen to study on our shores. Moreover, when we are

presented with net-migration figures we must be mindful that students are included, and should therefore net

out their considerable numbers. Let me now turn to the European Union’s Single Labour Market, EU

enlargement and what this has meant to the UK economy.

In earlier sections I reflect on how burdensome arrivals from across the EU have been on our economy. I make

it quite clear that whilst they place demands on our services and infrastructure they also act to lift capacity in

them. Repeating the point I have already made towards full-time students, in the event of Brexit or in any

reappraisal of how open our borders need to be, we must remain very much open to those across the EU

whose motivation in trying to reach the UK is to work here. Yes there will be those who have no intention to

apply themselves positively. Some will argue the method to discourage those with this intent is to deny

‘benefits’ to all those entering from the EU. To those who seek this I would say that it would create a two-tier

system presenting us with entirely new social and indeed practical problems, so too would the withholding of

in-work benefits. There are those who demand that Brexit or renegotiation should result in a screening system

for EU nationals keen to work in the UK. All I will say to this is that whilst a points-based system would indeed

‘raise’ the bar on who enters, it would also raise the problem which Australia is facing whereby those entering

are on average better educated and skilled than those raised there; thus opening up entirely new resentment.

As for a quota system, how are we to arrive at what will in effect prove an arbitrary figure? Let us accept that

in accepting economically motivated arrivals from across the EU we are getting bakers, builders as well as

doctors and dentists as well as cleaners and canteen staff. My sentiments towards EU nationals keen to work

in the UK are little different from those I have for applicants from beyond the EU. The vast majority apply

intent on bettering themselves, and for the vast majority of these their arrival betters our national economy. I

am steadfast in this belief because I happen to have extensively studied labour migration and have only ever

found evidence of its net economic benefits, even when those arriving have access to ‘benefits’. This brings

me to the last stream of arrivals bracketed under broad banner of ‘immigrants’, and the most controversial,

those keen to seek asylum.

As much as discussion of Bulgarians and Romanians et al. entering the UK by virtue of the European Union's

Single Labour Market awakens heated debate, that concerning those in the Calais 'jungle' trying to make their

way here to seek asylum leads to nightmares. Indeed, it has been claimed by David Cameron that Brexit could



20

see France 'tear up' the thirteen year Le Touquet agreement by which UK officials check passports on French

soil in Calais and Dunkirk, thus releasing a tidal flow of those in camps such as the 'Jungle' into the UK; the

figure suggested a staggering 500,000. One reply to this 'scaremongering' is that 'the juxtaposed' Le Touquet

agreement is a bilateral Treaty between the UK and France and thus dis-intermediating the EU. Let me close

with my personal thoughts.

Accepting asylum seekers is not a decision based on a nations economic ‘good’, but rather a nations ‘good’

conscious, and I would never dare suggest what is the ‘right’ number of asylum seekers the UK should accept,

or from where it should be deemed the seeking of asylum is justified (chart 20). What I will dare to say is that

the whole asylum crisis has at its core imperious regime change agendas by ‘western’ leaders who I will let

history judge. What I will claim is that the crisis has been dealt with particular poorly by one particular leader

of an EU nation, which is making her as unpopular amongst here once faithful nationals as she is in large parts

of austerity hit euro-land.

Chart 19: Net-migration to Britain, excl students

Chart 20: Asylum grants awarded and refused

Source: ONS (*Data to Q2 2015), Toscafund

Let me close this section with these words. The idea that we should be caged-into the EU to be protected from

the ‘Jungle’ is a woefully poor argument indeed. There is an asylum crisis which all across Europe have to deal

with, not least the UK. And given others across the EU have taken matters in their own hands so the UK should

continue to do so. There should be the same keen scrutiny of asylum claims as there is to screen for bogus

student visa applications. And just as voting to leave the EU should not turn on the thorny issue of asylum-

seeking, neither should voting to stay.

“All are equal, but some are more equal than others”

Much has been made of David Cameron’s demand that a ‘two-tier’ system be introduced, to deter EU

immigrants being drawn to Britain because of our ‘generous’ benefits. Unsurprisingly the leaderships of

member countries with large numbers of nationals working across the UK have been particularly critical of this

specific request in our Prime Minister’s renegotiation of the UK’s EU membership terms. For my part, I have

argued above that we should not exaggerate how much denying in-work tax credits and other benefits for a

specified period after entry, might lessen the attraction of working in the UK for prime age adults across the

EU. I would also like to make clear my thinking that I see nothing wrong with treating differently – for a time –

European Union nationals entering the UK keen to work. Let me try to explain my reasoning in the best way I

know how, by providing an analogy.

On most flights we will notice passengers are seated in compartments where they are ‘treated differently’.

There will be a contrast in the ease with which we board and leave the aircraft. Once at our seats, these will

also be different and so too the in-flight service provided for us. Now the reason behind where we sit may well

have as much to do with how early we booked, as how much we paid. It may well be that we have a frequent

flyer or some other loyalty privilege.

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Tho

usa

nd

All Migrants less Formal Study Formal Study

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Tota

l in

itia

l d

eci

sio

ns,

th

ou

san

ds

Asylum grants Asylum refusals



21

The EU and the Kinnocks: A family business

In the early hours of April 10th 1992 Neil Kinnock was forced to accept defeat in the General Election which

had been contested the previous day, the culmination of weeks of canvassing and Mark Twain-esque stories of

the death of the incumbent Government. The exaggerated end of John Major’s premiership and Kinnocks

capitulation came against the backdrop of opinion polls all the way through to election-day suggesting that he

would become the UK’s new Prime Minister and John Smith our new Chancellor. As it was, John Major

remained Premier and Norman Lamont continued as his neighbour in Number 11 Downing Street for five more

fateful months. Within three days Kinnock announced that he was standing down as leader of the Labour

Party, a position he had held for eight and a half years, replaced by the man who would have become his

Chancellor.

What marks out Neil Kinnock to me isn’t that he holds the record of the UK’s longest serving leader of the

opposition, but the course his ‘career’ took following his defeat of 1992, and how his family shared his

adventures.

In early 1995 having served as an MP for 25 years, Neil Kinnock left Westminster to join the European

Commission as Transport Commissioner. The move ‘united’ him with his wife Glenys, who a year earlier had

been elected to the European Parliament. The Kinnock family connection with the European Parliament did

not end there, though. It extended when their son Stephen began work as a research assistant there. Whilst he

returned to the UK where from last year he is now an MP, Stephen Kinnocks connection with the European

Union continued when he married Helle Thorning-Schmidt, who he met rather notably in the College of

Europe. What makes Helle Thorning-Schmidt so noticeable is that she too spent time as a member of the

European Parliament before going on to become the Prime Minister of Denmark.

What is my fascination with the Kinnocks and the EU? Well, I would argue quite frankly that for a while the EU

practically became a “family business”, and a very generous one at that. For along with the salaries, came the

expenses, notably the appearance money, for not much of an appearance on most occasions. The Commission

and its superstructure provided the Kinnock family with a place to escape to until its members could return to

the UK; in the case of Neil and Glenys, so as to take up unelected roles. As for The Honourable Stephen Nathan

Kinnock, whilst he does indeed have an elected mandate, his entry to Parliament came in the extremely safe

Labour seat of Aberavon. Now were Plaid Cymru to someday reproduce the success in Wales the SNP has

enjoyed in Scotland, I have little doubt Stephen would evacuate himself back to the bosom of Brussels as his

father did over twenty years ago.

My point in all this is that when you hear any of the Kinnocks canvassing against ‘OUT’, bear in mind that they

are some of the EU’s biggest ‘INsiders’.

We might be the privileged passengers or we might not, but we all share the same journey, and whatever

thrills some may enjoy that others don’t, we share the same aircraft and pilots. And whilst some may

experience speedier and less hassle than others when embarking and disembarking, in an emergency when it

really matters there is no priority or privilege, every passenger is treated equally. It is precisely as a passenger

aircraft that I see an economy. To those who are keen to create uniformity I would point to how every

instance where this has been attempted by an airline it has inevitably (re)introduced money based

‘differentiators’, from priority boarding and seat allocation to baggage allowance and ‘free’ food.

It is worthy pointing to the great prescience and penmanship of George Orwell who in 1945 gave us the

allegorical prose satire of ‘Animal Farm’. In this work of brilliance there was the notable paraprosdokian which

I will close by paraphrasing as a lesson to those keen on a collectivised EU “all are equal, but some are more

equal than others”.



22

EU Gamesmanship

Game theory abounds within modern economics and one particularly interesting aspect is the idea of dynamic, or time,

inconsistency. This deals with how participants will claim to behave in a certain way under certain events only to behave

quite differently were the event to happen. An instance of this would be a government claiming it would never negotiate

with terrorists only to do so in the event say a terror group took its nationals hostage. It might negotiate in secret but

negotiate it would. Why am I bringing time inconsistency into the discussion of the UK’s EU IN/OUT referendum?

Well, because it is incredibly relevant. We are being told that a vote to EXIT the EU would see the UK tied up for years in

renegotiating access to EU markets. The inference is that the UK economy would suffer serious harm during this long

interregnum. Well, not quite. The reality is that the UK buys more from across the EU than it sells to it. Any interruption

then to the UK’s open trading with the EU would hurt the nations that it is a customer of. There is then a clear time

inconsistency between claiming a UK sans the EU would be caught up for years in a state of trading limbo and the urgency

with which all parties would behave to get an open-trade deal done. After all if the EC were honest about the speed with

which deals could be done with EU departees, there would be a veritable exodus from it.

9. Food for thought on Brexit

We have been told that leaving the European Union will trigger an assortment of economic misfortunes. One

of the threats being levelled is that we face a noticeable increase in the cost of what is our most basic need,

food. In this short section I wish to undermine this particular claim, doing so using something yet to be used by

the ‘IN’ campaign; plain economic facts.

We know that since 1962 the EU has operated the Common Agricultural Policy (CAP). In a nutshell (sic) the

CAP aims to create a level pricing playing field for farmers across the community – using intervention prices

and set-aside payments – in part by protecting them from outside competition through the use of lofty import

tariffs. The result of the CAP – even in its ‘reformed’ way – is that food prices are set in effect according to the

farming practices of the least efficient. This ‘corruption’ of the market has almost become ingrained as

something which goes unquestioned, and is symbolised by generous subsidies, excess-production (‘butter

mountains’ and ‘milk lakes’) alongside above market clearing prices for our foods. In practice then, the CAP

costs UK households dear. The question, of course, is where do UK farms stand in the agricultural productivity

ranking? Let me answer by providing some detail.

Nation after nation across the European Community has recently exercised territorial exclusion requests to

opt out of GM crop usage. The largest to do so has been Germany, whose Agricultural Minister Christian

Schmidt claimed German households had no appetite for “biotech produce”. Remarkably, only England within

the UK has not joined those opting out, since Scotland, Wales and Northern Ireland have exercised their

regional right to reject GM crops. The result of all this opting-out is that across the EU 140,000 hectares of

land is cultivated using GM crops compared to 141 million around the world.

In addition to England adopting GM crop cultivation it boasts one of the European Union’s most impressive

industrial farming models. Remember this section is not about whether intensive farming is a ‘desirable’ goal –

although I am convinced it is – but where UK farms and, in particular, those across England are in the cost of

food production league? The answer is impressively low down. Let me substantiate my claim.

Unless the laws governing economies of scale have been suspended ours must be amongst the most cost

efficient farms across the EU, if not the world. Indeed, the arrival of migrants has provided a pool of willing

and competitive labour to man our agricultural sector and other parts of the food supply chain; from ‘farm to

fridge and fork’ as it were. True, we are seeing a rising minimum/living wage which can only increase labour

costs. No less true is that our efficient agricultural and food processing sectors more generally will remain

extremely competitive all the same. Downstream the rise of discounter grocers has meant we are enjoying

ever more competitive food prices. Indeed just as the management’s of BMW and VW know their fortunes are

linked in no small way to those of the UK economy, so too do those of Aldi and Lidl (what they say to their

British workers is spin).

In short those claiming we face higher food prices outside the EU will end up eating their words as we eat

more affordably.



23

10. Shifting alliances

Single-issue campaigns have been known to pit traditional friend against friend, as well as long-standing

opponent alongside opponent. Normally when the outcome has been established underlying friendships and

enmities inevitably resurface. Let me consider recent instances.

If the SNP can be considered a broad Nationalist “church”, so too can Scotland’s Unionists. We witnessed the

rather eclectic latter alliance at work ahead of the Scottish referendum on independence, when the leaders of

the Labour, Conservative and Liberal Democrat parties all stood shoulder to shoulder. We are again seeing a

remarkably similar assortment of odd bedfellows in the lead up to the UK referendum on membership of the

European Union. Most notably, from being on opposing sides David Cameron is now canvassing with Nicola

Sturgeon on continuity within the EU (there has of course been the conspiratorial suggestion that she might

see a vote to leave as a catalyst for a quick second independence referendum). From within their own party

Cameron and George Osborne are now facing Michael Gove and Boris Johnson. To illustrate the strange

alliances single-issue politics can produce, we have recently seen Nigel Farage share the same platform as

George Galloway. We, of course, had a similar situation in 1975 when the ‘OUT’ campaign placed Dennis

Skinner and Tony Benn alongside Ian Paisley and Enoch Powell. Moreover, back then the ‘IN’ provided a rare

chance for Margaret Thatcher to share a platform with Edward Heath, who she had deposed in early 1975, as

well as Harold Wilson, who had forced Heath out of Downing Street. I could continue to chronicle the odd

bedfellows in that campaign and the one we are in, but hope I’ve made the point. Kindred spirits in the

current campaign have temporarily replaced snarls for smiles, whilst enemies have reversed these facial

expressions.

With the theme of the shifting sands of individual alliances within the UK let me rather controversially move

on to a not too distant historical perspective of how national alliances across Europe have changed.

Across the present EU the UK now sits alongside Germany, a nation which it faced in open conflict from

September 1939 until May 1945 (yes times change us all, but we cannot redact history). Continuing with a

perspective of what happened 75 or so years ago, elsewhere across the European Community although

neither Spain nor Ireland officially took sides, few historians will claim their nationals were generally impartial.

Across to Scandinavia, Norway – long outside the EU – was on our side and still today gives thanks for British

efforts to support it by gifting the fabulous Christmas tree which lights up Trafalgar Square (in which the

famous statue honours another battle which pitted an odd assortment of current EU nations against one in

particular). For its part we know that Sweden remained neutral during World War II, but often forget that

Finland aligned against the UK; elsewhere across the present European Community, so too did Hungary and

Romania. We also know that Italy ‘turned’ late, whilst some Frenchmen seemed somewhat ‘confused’ (the

British navy will testify to this when it recalls Mer el Kebir, amongst other ‘skirmishes’ with their erstwhile

ally).

Back in the early to mid 1940’s Greece was embattled; the ‘aggressor’ then currently tormenting it again, or so

many Greeks feel it is. As for Malta it earned the George Cross for its efforts to keep the Mediterranean open

for the Royal Navy, whilst Cyprus provided a safe base for British forces in its Levant. As for the ‘Low Countries’

of Northern Europe Belgium was quickly overrun whilst there is an unpleasant truth that Dutch forces fought

some of their own during the invasion of their country. If this litany of confused allegiances were not enough,

the Poles had to experience an invasion involving two diametrically opposed regimes from east and west;

common aggressors who within two years would be at war with one another. Indeed, operation Barbarosa

forced a wider realignment, as former deep-rooted enemies of the Soviet Union became brothers in arms with

it; notably Churchill with Stalin.

That I have left out current EU members from this historical perspective is only because I hope the point has

been made. That is, do not imagine that allies today will be allies in the future, nor adversaries now will

remain so in the future.



24

11. The mandates of the EU and London Assembly are Polls apart

According to its own definition, the European Commission “is the executive body of the EU responsible for

proposing legislation, implementing decisions, upholding the EU treaties and managing the day-to-day

business of the EU”. Its 28 Commissioners, one for each member state, swear an oath at the European Court

of Justice in Luxembourg pledging to respect the treaties and to be completely independent in carrying out

their duties. As to how this ‘Cabinet’ is appointed, the Commission President, currently Jean-Claude Juncker, is

proposed by the European Council – essentially the heads of Government of all member states plus the

Council President, currently Donald Tusk – and elected by the European Parliament. The other 27

Commissioners are appointed by the Council subject to a vote of approval by the European Parliament.

Serving the needs of the College of Commissioners, based in Brussels, is a 23,000 strong civil service. Quite a

set of structures! The issue I would like to discuss in this short aside is just how great is the popular mandate

of these institutions, governing, as they aim to do, the lives of over half a billion people? Well the answer is

remarkably low. To understand just how narrow the mandate of MEP’s happens to be we need only

remember that the turnover in May 2014 was 35.6% compared to the 66.1% for our General Election a year

later. In fact the only element of the EU structure where truly popular vote is concerned is in the heads of

Government who sit on the European Council, one of whom of course is David Cameron, who is now involved

in renegotiating the UK’s engagement with its EU partners. Let me put his mandate in some numerical

context.

The numerical reality of our political system is that of all the positions across the UK filled by popular vote, the

representative with the largest mandate is not the Prime Minister but rather the Mayor of London. By way of

comparison in the most recent General Election David Cameron was endorsed by a 43% plurality of the 58,500

of those who cast a vote in his Witney constituency; in short, polling 25,100 votes. For his part, Boris Johnson

was supported by a 51.5% majority of those who turned out in the 2012 London Mayoral election, attracting

1,054,800 votes (quite separately, he currently also represents the London Parliamentary constituency of

Uxbridge and South Ruislip, where he incidentally polled 22,511 votes, a majority, albeit 50.2%, of those cast).

The fact is that after those of the Presidents of France and Portugal (just), London's Mayor holds Europe's

thirst largest electoral mandate, and with it comes some responsibility. The Mayor of London has oversight of

the world's fifth largest metropolitan area, Europe's biggest city, equivalent to the economy of Sweden,

representing over one-fifth of the UK's GDP. The Mayor’s remit extends across a city of over eight million

people, Scotland and Wales combined, living across its seventy-three quite varied parliamentary

constituencies, this despite London extending across barely one percent of the UK's land mass.

We know that within a short while England will boast additional elected mayors widely across it, as set out by

the provisions of the 2015-16 Cities and Local Government Devolution Bill. As with the London Mayor, each of

these metro-mayors will have oversight of a region extending across multiple local authorities as well as

covering multiple parliamentary constituencies. Their arrival will herald as much a decentralisation of power

from Westminster as an aggregation of what have, for too long, been parochial powers; scale providing

strength to champion and negotiate on behalf of the regional cause. For context, if the 'Northern Powerhouse'

and 'Midland Motor' regions were to be as extensive as I imagine their apogees could be, the popular

mandate of the former’s mayor would be as great, and that of the latter not terribly far behind that of London.

What is my point? Well, those who believe in true democracy must accept that the EU is more a technocracy

and that the democratic way forward for Britain is not submission to the EU centre but devolution to elected

Unitary Assemblies with elected Executive Majors.



25

Brexit - Yes to it

It would be reckless not to have some trepidation about

voting OUT. Doubtless their niggling reservations will

incline some to vote IN, who will regret their decision the

moment they have committed to it. The same can be said

in reverse for those voting OUT with some reticence.

However, the forces will not be symmetric, and so neither

will the numbers involved. The reality then is that the IN-

vote will be biased upwards by the fear of an unknown,

an invariably exaggerated fear, I assure you.

Brexit fears; calm-down dears

There can be little objection to the idea that for the vast

majority of us our default is risk-aversion. Put another

way we generally prefer continuity, and will to pay a

premium to ensure as much. This is in effect the basis of

non-statutory insurance. Even insurance adverts for a

while played on the fear of having to ‘repair the damage’

of a shock by showing the damage of the feared

eventuality and then calming the viewer by saying it was

only an advert. Now in the case of seeking ‘cover’ for the

prospect of one’s home and its contents being damaged

or car being involved in an accident we can imagine what

potential loss we are keen to mitigate against. We can

then take out what we consider appropriate insurance,

where the premiums are set by astute actuaries keen to

extract as much of the available risk-premium as they

can.

There are of course events which derail continuity where

we simply cannot imagine how things might unfold

consequent to them. In these instance if the case is made

strongly enough that there is the potential for nasty

surprises we will be inclined to maintain the status quo of

what we know over what we cannot anticipate. I would

argue that the Yes camp was up against this headwind in

the Scottish independence Referendum campaign; you

might win over hearts but more difficult to persuade risk

averse heads which fill-in ballot papers. The same head-

wind looms for those campaigning for Brexit. Indeed, the

winds against them will made to blow all the heavier as

the ‘IN’ campaign presents ever more hyperbole over the

consequences of ‘OUT’, the closer things seem the

greater the post-apocalyptic rhetoric. One irony here is

that it was the risk aversion against “the Ed’s”, Miliband

and Balls, which saw the ‘surprise’ continuity of a

Cameron Government. The irony I speak of is that this

continuity is the reason we face a Referendum where we

are being offered the option of discontinuing our

membership of the European Union. As to whether this

‘unknown’ is to be feared enough for us not to leap into

it, I would reply that where an un-reconstructed EU is

heading, is no less clear.

12. Brextimate

I have as much confidence in claiming I know precisely how many grains of sand there are in the Gobi desert

as I do in asserting what the net cost to the UK

might be were it to decamp the EU. Indeed, I

would laugh in the face of anyone who

produces what they claim to be the definitive

number. Not only am I incapable of forecasting

the net-effect on the UK economy of Brexit I am

not even sure whether it would be positive or

negative. My confusion has nothing to do with

my shirking from responsibility, after all I have

never held back when I think I can formulate an

informed opinion.

My reluctance to commit at the moment to a

“Brextimate” has everything to do with the fact

that I have no idea what degree of isolation

Brexit would involve. There are, after all, a

range of possibilities for how far removed from

Europe we choose to make ourselves, most

notably in relation to our labour market. And

there are a range of possibilities as to how

much the rump of the EU chooses to isolate the

UK as a penalty for leaving their group,

particularly in terms of our ability to export to

it.

The consequence of the UK leaving the

European Union is further complicated, indeed

considerably confused, by what it might mean

for the United Kingdom. After all it looks almost

certain there will be marked differences across

the UK in attitudes towards continued

membership of the EU. Imagine that a majority

of those in England indicated their wish to leave

but a majority of our fellow nationals in

Scotland voted to remain. This could easily

open an entirely new schism within the UK to

the point that not only an even more strident

Scottish but an English nationalist lobby

emerged.

It might make matters seem less complicated if

I say I can be confident of how currency and

money markets would respond to all this

uncertainty. The problem is that I cannot be

sure what a weaker currency and higher yields

might mean for the UK economy. Let us start

with the pound for instance. It is inconceivable

that it would strengthen against the euro or



26

Out to a Club

To its enthusiasts the European Union is a Club, indeed in their eyes it is an exclusive Club whose membership

is highly sought after. That any member should wish to leave seems inexplicable to those who view the EU in

this way. Well, a Club it may be, but Annabel’s it is not. It is in fact a rather run down club, and one in which

tensions are rising amongst its members. Having been excluded by Austria from a conference organised to

discuss the “refugee crisis”, Greece has filed an official complaint calling the meeting “non-friendly”. Ill feeling

can be felt elsewhere as neighbours close borders to neighbours, where there was once Shenzhen-free

movement. Now if in a Club where one senses trouble is brewing, surely the most sensible course of action is

to look for a quick EXIT?

dollar if Brexit seemed likely even more so if the UK itself was threatened with a breakup. The question is

would a competitive advantage result? After all if we were denied open access to EU markets where is the

advantage of a weaker currency? Moreover, a weaker pound could not fail to stoke inflation, and this could

only raise borrowing costs, or rather further raise interest rates, since I am certain the prospect of Brexit

would unsettle sterling money markets. There will be, of course, arguing that across a developed world where

deflation is the ominous fear, the UK being injected with a dose of inflation, far from being a concern should

be welcomed. To complicate Brextimation there is the uncertainly as to what economic health the EU might

find itself in over coming years. After all, if we are to come close to gauging the cost of not being part of the

EU, we need to have some idea of what the UK economy might be missing. Let me be clear, I have

considerable reservations about the economic future of the EU and particularly of the euro-zone. The reality is

that no discussion of the Brexit issue can hope to be complete without consideration of both changing – read

deteriorating – economic fortunes across mainland Europe as well as shifting political – read popular –

attitudes towards the EU beyond the UK. In this regard there can be no denying there is a mood widely across

the UK’s fellow EU members which is increasingly sympathetic to the view it is in need of considerable reform;

a view that the ‘centre’ has overreached itself; going from a much needed economic union to one with

unwelcome political ambitions.

I for one am convinced the mood against the EU’s ‘overreach’ will only increase and broaden with every

passing day. Hungary isn’t happy, nor too Poland, Finland, Denmark or Sweden. I could go on. Against such a

backdrop, the UK’s bargaining hand can only strengthen, and so the potential for it to be seen as the

trailblazer of much needed and welcome reform. From Germany in its self-aggrandising way, considering itself

the first amongst EU equals, there is every reason to believe the UK will be given this mantle.

In considering the extent to which the UK has strength to achieve the reform it demands, we must not ignore

the damage to the EU of the UK no longer being part of it. For the further the EU sends the UK into rustication

the EU will harm itself; harm itself along any number of dimensions. Consider for a moment how the boards of

both BMW and VW might react to their car making operations across England suffering trade-sanctions which

in large part have been orchestrated by their own Government. Consider too the impact on remittances of the

UK being a “bad-EU leaver” and it in turn withdrawing the right to work of all those EU nationals currently in

gainful employment and who make valued financial contributions to their country of birth. I could ask for

consideration of other financial benefits the UK provides the EU; from its contribution to those organisations

ever more stretched budget, to the weight the UK provides the EU when it negotiates as a diplomatic and

political whole. As a final point on the issue of its former EU partners penalising the UK for leaving, one

wonders what the World Trade Organisation (WTO), the global free- market policing body, will have to say

about the erection of trade-barriers.



27

13. Brexit would be no Greek tragedy

For periods over recent years all eyes were fixed on Greece amid frenzied talk of it withdrawing from the euro-

zone. At these times those encouraging such a defection seemed ignorant that it would have also meant

exiting the European Union. And whilst some might claim this double whammy would have proved favourable

for Greece the reality would have been a descent into autarky.

The risk of a human exodus from Greece following its abandoning the euro would have forced its nationals

losing their access to the single labour market. Those many Greeks already working across the EU would have

been forced by Grexit to return to a homeland suffering acute social and economic traumas, either that or

searching for a welcoming home beyond Europe. There would have been the trauma of having a sunshine

nation becoming ever darker; what was once the white economy rapidly turning ever more grey, and ever

more of the nation fading into the black market of extortionate exchange rates, as Greeks desperately sought

to exchange into euros whatever their Government came up for its fiat currency. Post Grexit the elderly and

infirm would have found them in a dystopia none thought imaginable in 21st century Europe, and in what was

once one of the world’s most celebrated centres of brilliance across commerce, arts and science. As for those

in Greece with any transportable skills they would offer themselves up to whichever nations were willing to

welcome them. Another trauma brought about by Grexit would have been the isolation of Greece from EU

markets, this at the insistence of its Balkan neighbours fearful of Greek farms and factories dumping into their

markets. Indeed, for its smaller neighbours such as Macedonia and Albania, Grexit would pose considerable

contagion threats; imagine all this alongside the current asylum crisis; a crisis made all the worse by Angela

Merkel taking it upon herself to speak on behalf of the EU when she could not even speak on behalf of most

Germans. Returning to Grexit no doubt many of us would have flooded into Greece through the summer to

exploit its climate and scenery we would also be doing so to exploit the desperate hard currency needs of its

hotels, restaurants and bars, and no doubt triggering a price war along the Mediterranean, Adriatic, Ionian

and Aegean seas.

So, if Grexit would have proven so unfavourable to Greece why not Brexit for Britain? For one the UK boasts a

sovereign currency. And whatever one expected of the pound in the wake of Brexit, the word trauma would

not be justified as a description. For another any attempt by the EU to isolate the UK from its single labour

market or free-trade area would result in a self-inflicted trauma on a number of EU members, from

neighbouring Ireland, down to Malta and across and somewhat ironically to Greece. And as noted elsewhere,

neither VW nor BMW would welcome any attempt to besiege their UK activities, nor would the multiple other

corporates from around the EU which have built a profitable presence across the UK.

The reality is that no two EU nations share the same exit eventualities. Just consider Finland for instance,

which is elaborated upon in a later section. It could depart the euro-zone were it to join Norway, Sweden and

Denmark in forging a unified Nordic currency. This quartet could in fact carve out a Nordic bloc outside the EU,

too big for the rump EU not to openly engage with. For its part Ireland could depart the euro-zone, assuming it

were willing to readopt the pound. It could also depart the EU if it did so in conjunction with the UK. I am not

suggesting new alliances, simply reimagining the strong links which once existed across Europe and which

predated the creation of the EU superstructure, links which were deemphasised as the European Commission

reach crept ever more into sovereign areas it had no legitimate right to enter.



28

An unfriendly return?

Sometimes a sportsman returns to a stadium which he once graced as a 'home' player, and is welcomed

extremely warmly. More often, the welcome by the faithful is less than friendly. The reaction is particularly

vitriolic when the departure is the result of a transfer request, all the more so, when the 'team' has been facing

relegation (most recently experienced by Jemain Defoe on his return to West Ham's Boleyn Ground). Indeed, a

player who has desired a move but continues in situ, is invariably as unpopular with the faithful in the same

insipid, simmering way as one who departs and returns in 'new colours' (consider Saido Berahino still at West

Brom). What is the relevance to our approaching Referendum?

We know the UK electorate is contemplating transferring out of the European Union; I see it of course as a

promotion. This has not gone down well with the EU faithful. Now, in the years ahead we will still have to

perform on the European pitch, whether we are wearing the EU shirt or the UK's reinstated red, white and blue.

Herein lies the problem, a mistaken perception of disloyalty. Players depart or demand a move almost invariably

when their ambitions – including financial reward - are not matched by the team they are in. There have been

instances when the threat by the star players to leave has triggered a reaction and 'The Club' raises its sights to

those of its very best (Wayne Rooney in 2010). Other times players leave and the loss to their old team is made

all the worse by seeing them thrive in their new environment (I imagine Raheem Sterling and Luis Suarez have

not regretted their moves from Liverpool, and suppose their former team mate can only look on in silver-wear

envy). The lesson for us is that as much as we are Club players we should recognise that we have out-grown

team EU and a transfer request is not enough we need to move on up.

14. Get it out of the way, Damn it

Against the backdrop of a surge in UKIP support and concerns a schism would open in his own party, in

January 2013 David Cameron committed to an in/out referendum on the UK’s continued membership of the

EU, claiming the British people must “have their say”. Given he only held power by virtue of a coalition

agreement, and with opinion polls showing a lead for the Labour Party which had refused to commit to a

referendum, some saw the idea of our EU membership being put to a ‘plebicite’ as fanciful.

Well, in the wake of the recent General Election David Cameron remained Prime Minister; he is in fact now

unencumbered by a coalition partner. Indeed, not only did the ‘split in the Tory vote’ and surge in UKIP seats

not materialise, it lost one of its Tory defectors. Some might even argue that is was what some at the time

considered David Cameron’s reckless commitment to a referendum which caused Mark Reckless to lose his

seat to the Conservative candidate, and and why the Tories are now the sole Party of Government. The SNP

will of course argue their near clean-sweep of Scottish Parliamentary seats was a major contributor to Labour

failing to sweep into Downing Street. Whatever the reasons for the Conservative election win - and there were

many others which have been extensively covered in the months since May 7th

– we now face a Referendum

on our continued membership of the EU. We even have a draft outline of what reforms the EU is offering as

concessions to persuade us to stay. What we still do not have however, is a date.

The original ‘Cameron commitment’ was a referendum not later than mid-way through what he hoped would

be his second spell as Premier. Hence the expectation of a summer 2017 referendum. As things stand we are

told to expect the vote to come in June.

The SNP has argued that scheduling for June will conflict with elections to the Scottish Parliament (as well as

voting for the Welsh and London Assemblies amongst others). One can sympathise that Scots face ballot-

boredom. After all, having already been heavily canvassed and then cast ballots in September 2014 and again

in May, confronting them with two more votes through May and June might lead to ‘voter-fatigue’ and

apathy. I disagree. Although only time will tell, I expect turnouts to hold up and keen and excited interest in

the campaigns.

As with any period ahead of an uncertain outcome, a degree of confusion reigns. And whilst it’s economic

harm is impossible to quantify, that uncertainty is economically unhelpful cannot be denied. True, I have

argued that any weakness in sterling caused by uncertainty will be welcomed by exporters and those sectors

within the UK - for instance the leisure industry - which can capitalise on a ‘cheaper pound’ (read ‘more

expensive’ overseas travel). This said uncertainty has an adverse impact on investment decisions. For my part I

can see no justification for delaying the referendum beyond its earliest practical date. My point quite simply is

“Damn it, just do it”.



29

Playing the big leagues

After returning with the concessions that David Cameron considered satisfactory to recommend we remain in

a “reformed EU”, on Monday February 22nd he stood to speak to the House of Commons – indeed to us all –

to explain why. He made particular mention of the importance of trading with our neighbours. Whatever else

we think about the European Union none can or should take issue with the importance of playing alongside it

in trading terms. What I would add however is that we must not be parochial. As much as there is so much to

play for when Exeter, Torquay and Plymouth compete with one another, all three would relish the chance to

meet teams from London, Manchester and Liverpool. And just as important to an Arsenal fan is playing Spurs,

so too is meeting Barcelona and Bayern Munich. The importance of scope applies nationally. Few could claim

they do not greatly enjoy the spectacle and rivalry when England play Scotland, Wales, France, Spain or

Germany. This said we also want to watch England play Brazil, Argentina in football and compete with

Australia, New Zealand and South Africa in rugby and cricket, in fact we want to see us play all other nations in

all other sports where we can test ourselves against world class competition.

15. Promotion Out of the European to the world league

Throughout this paper I have adopted the convention of using ‘IN/OUT’ to describe the options facing the UK

electorate when they come to vote in the referendum on June 23rd

. This said I would have preferred to have

employed a different taxonomy. Specifically, I think it more apt to describe leaving the EU as a Promotion. Let

me explain why a convention in sport to reward winners and provide them with more demanding

competition, is an apt metaphor for where the UK economy finds itself.

Imagine a league table for the member nations of the European Union, one in which their economies are

ranked according to points earned from their pace of GDP growth, job creation and other measures of

“success”. Well, year after year since 2010, the United Kingdom has been the champion of this league. Indeed,

I have little doubt that it would continue to sit atop this particular regional division over coming years. The

problem is that just as a sports team needs a challenge on a greater global stage so does an economy. When

either is denied demanding competition the risk is reverting to the mean by not trying as hard because it is

confined to a local division. Indeed, what makes the EU league all the more frustrating is that its average

quality is declining. And this is precisely why the UK needs to get ‘OUT’ or be promoted from the EU division.

Rather than Spain and France, the UK should be playing host to, and playing away in, China, a huge growing

nation which is investing in building an ever stronger team. Similarly the UK should be more often up against

the likes of Australia, New Zealand, Canada and Norway, none of which happens to be in “the parochial EU

league”, but all with strengths and complements with it which will raise the UK’s economic game. Canada for

instance boasts being part of the North Atlantic Free Trade Area as well as enjoying a Comprehensive

Economic and Trade Agreement with the EU. It is also proving the destination of a growing number of prime-

age well educated and skilled nationals evacuating large parts of the European Union, a flow of population

which the UK is also a net economic beneficiary of. The UK is also where across the EU, the likes of Canada,

Qatar and Singapore et al., are focusing a great deal of foreign direct investment; a vote to my mind at least

that they also see little reason to be concerned by our departing the EU.

Table 1: EU GDP league (% real change 2010-15)

United Kingdom 12.0

Germany 10.9

France 6.0

Eurozone 4.8

Spain 1.4

Italy -2.0

Source: National Statistical Offices, Bloomberg, Toscafund



30

A Brexitstential view of Japan

No doubt many readers will find it curious that a discussion paper considering the merits of the UK

being promoted out of the “EU league” should involve consideration of Japan’s own regional

engagement. The relevance occurs on two fronts. For one – a point I have made in a section below -

Japan’s halcyon economic growth came when its engagements were not close to home but far afield, all

the way in fact to either side of the North Atlantic. In essence Japan proved that an economy could

perform strongly even when the region in which it was located was not terribly impressive. The second

relevance of the “Japan story” for the UK is that whilst casting its sights far afield served it well when

the North Atlantic was an attractive marketplace Japan allowed its domestic economy to suffer under a

protective-mind-set, one which has produced adverse demographic, monetary and broader economic

consequences. Consider, these paragraphs which I penned back in March 2010 in a Discussion Paper

considering Japan’s ‘failings’.

“Australia and Japan have been involved in negotiating a Free Trade Agreement since April 2007.

That some deal was being sought between two such close trading partners was hardly surprising.

Disappointingly, within a year of talks beginning they stumbled. The cause of the failure was

Japan’s insistence that certain products be excluded from any agreement. Notable here were

food commodities, around which Tokyo has imposed considerable tariff and quota barriers. If

one needs an example of Japan’s long term economic problems here it is; it wants access to

overseas markets without reciprocity.

Having based its economic growth on mercantilism Tokyo cannot see the inconsistency (indeed

hypocrisy) in its approach to trade. It wants Japanese producers to export freely, whilst at the

same time it demands the right to protect what it sees as strategic sectors. Of course in

defending its farmers Japan has managed to ensure they supply forty percent of its food needs.

The flip side of this is that Japanese households pay the highest retail prices for food across the

developed world. This is just one instance of how Tokyo’s protectionism has created an

inefficient internal economy. From barriers restricting the import of beef to those limiting the

inflow of economic labour, Tokyo has pursued a policy which can only be described as economic

asphyxiation. Of course Japan is preserving a social order, many elements of which it is quite

right to be proud. What needs to be accepted is that it has maintained this social order at

considerable economic cost. Japan’s is after all a nation with no significant natural resources, a

lessening competitive advantage across traded good sectors and a moribund internal economy.”

I often re-read these words to remind me that the UK can learn a great deal from Japan, just as China in

fact can. The lesson both London and Beijing can learn from Tokyo is how not to take an impressive

economic foundation and undermine it through narrow-minded policy. Yes, the UK can successfully

depart the EU. It cannot do so however if it isolates itself from the arrival of any of the crucial inputs

which Japan has been reluctant to accept; from prime-age adults enthusiastic to be of economic value

and cheaper imports which would improve household disposable incomes.



31

16. In praise of the self-preservation society

Few British films have gained the cult status of 1969’s ‘The Italian Job’, written by Troy Kennedy Martin (who

had earlier given us ‘Z-cars’ and, less than a decade later, would script the classic TV serial ‘The Sweeney’).

‘The Italian Job’ has it all, the iconography of swinging London as well as car chases through the industrial and

often chaotic architectural majesty of Turin. The films begins with Charlie Croker (Michael Caine) being

released from prison wanting to get back to “work”. Although the film includes any number of memorable

scenes one stands out; having watched an entire van blown to pieces, Charlie Croker cries plaintively to the

witless gang member Arthur (Michael Standing) “you were only supposed to blow the bloody doors off”. Such

humour never stopped even during musical interludes involving a soundtrack by Quincy Jones and Don Black

and the dulcet tones of Matt Munro, singing “On days like these”. The film was filled with beautiful women,

not to forget the peerless Irene Handl. Other cast members the film could boast included, John Le Mesurier

and Noel Coward, the former as the Governor forced to apologise to the latter, the panjandrum inmate Mr

Bridger, for Croker breaking into ‘his’ prison. As well as delightful cameos by Benny Hill and Fred Emney (if

ever a bulldog took on human form, it was his) the film managed to blend working class and posh boys

(“chinless wonders”) into a single ‘firm’ (“now, it’s a very difficult job, and the only way to get through it is as a

team, which means you do everything I say”). There was even a character, Camp Freddie (Tony Beckley) who

was Mr Bridger’s “man-on-the-outside” always sporting something in pink and “Big Willy” – for obvious

reasons, the driver of the coach. As well as providing men of the certain age – I admit mine – with endless

chances to reminiscence, and indeed to regress, I believe ‘The Italian Job’ has a contemporary relevance to the

UK’s ‘IN/OUT’ EU referendum.

The film, of course, predates the UK entering the European Economic Community (the forerunner of the

European Union). In fact the underlying premise of ‘The Italian Job’ was not European unity but rivalry across

it. More specifically, the plot turned on the competition between a British and Italian gang to get their hands

on the $4 million China was sending to Italy for Fiat to build a factory in China (in the book, which followed the

film, a German gang would be included in the competitive fight for the Chinese money; there is also

interference from the Mafia’s US side). Notably on the theme of international capital flows the script has

Croker phoning ‘the fixer’ Camp Freddie and pleading “Tell Mr Bridger this is a foreign job to help with this

country’s balance of payments”.

If one particular moment evokes where we find ourselves, it is the scene involving an impeccably tailored,

sinister, but softly spoken mafia ‘Don Altabani’ played by Raf Vallone, accompanied by his heavily armed

henchmen all in sunglasses and trilby hats. These are lined up looking down on the Alpine road where our lads

have been intercepted on their way into Italy. First the two E type Jags then the Aston Martin DB4 convertible

(“pretty car, paid for?”) are bulldozed and sent into the ravine below. After a brief reflection on this

intimidation and mortal threats, Charlie Croker counters with this:

“You’ll be making a grave error ... there are a quarter of a million Italians in Britain, and they

will be made to suffer. Every restaurant, cafe, ice cream parlour, gambling den and night club,

in London, Liverpool and Glasgow, WILL BE smashed. Mr Bridger will drive them into the sea.”

This point was clear, hurt Britain and Britain will retaliate. Realising this is not an idle threat ‘Don Altabani’

reflects with a smile before pointing with his sunglasses in a northerly direction with the words “Well

gentlemen, it’s a long walk back to England, and it is that way; good morning”. As we know Caine and his team

would not be cowed and chose to see out ‘The Italian Job’. They after all still had their trinity of red, white and

blue Mini Cooper S’s, a Land Rover, a Ford Thames van and a Bedford coach; all Made in Britain.

To repeat it may be close to fifty years old but the film resonates with contemporary themes. The Caine

mountain speech has its own contemporary relevance in the face of EU threats were we to vote for Brexit;

sanction our goods or our nationals, and we will act on yours.

Since cars feature prominently in the film (“remember in this country they drive on the wrong side of the

road”) it is worth spending a moment on their fortunes (after all to quote from a book by Matthew Field it was



32

“the greatest commercial ever for any car”). In 1969 the Mini Cooper S, Aston Martin DB4 and E type Jaguar

were global engineering and design icons. Sadly within a handful of years Britain’s automotive industry had

fallen on hard times. This included the three brands showcased in the film, all struggling with build quality,

labour disputes and woeful state management. Fast forward however through the supply-side labour market

reforms of the 1980’s, the state de-engaging from public ownership and Britain keeping sovereignty over its

currency and interest rates, and all three marques are back and are thriving, producing more cars than ever

before from British factories (albeit foreign owned).

True the original Fiat 500 also featured prominently in those Turin streets and it too has been successfully

revived as indeed have the Alfa Romeo and Lamborghini marque’s which also featured in the film (not always

flatteringly it has to be said). There is, however, a marked distinction between the scales of these revivals; the

UK’s far stronger than that enjoyed by Italy. Indeed, if we move from the volume of British cars being made to

their unit value and export share, our car makers have “never had it so good”.

Chart 21: China’s FDI, 2005-15: Britain vs. Italy

Chart 22: Vehicle production, Britain vs. Italy

Source: American Enterprise Institute and Heritage Foundation, OICA, WARD, RITA, Wood J. (Motor Industry of Britain Centenary Book, 1996), Toscafund

To recap the film’s plot back in 1969 was to ‘redirect’ to Britain the Chinese capital intended for Italy. The

reality now is that China’s foreign direct investment into the EU is directed in its largest amount to the UK.

Crucially, the Chinese capital which has recently been entering the UK has not been to finance the building of

industrial or commercial property in China, but to invest widely across the United Kingdom itself. In short,

today we are not seeing Britons making their way to Italy to take advantage of events there but witnessing

Italians heading to our shores to carry out ‘A British Job’; taking up work in finance, education, health services

and indeed extensively across many sectors. Italians are far from being alone in seeking to do A British Job,

French and German nationals keen to do so in growing numbers as indeed continue to do Poles et al. Keep in

mind these arrivals are not at not at the expense of Britons. After all, whilst there have never been more

foreign-born nationals working across the UK, neither has there been a time when more of us have been in

gainful employment or seldom fewer of us – as a percentage – out of work. For their part vacancies are at a

multi-year high.

Frustratingly because of the intention to have a sequel the conclusion to ‘The Italian Job’ was left hanging,

quite literally. For my part, I have always drawn hope from the last line “hang on a minute lads - I’ve got a

great idea”. Who after all amongst us didn’t want them to get away with it?

In closing I like to think this homage and contemporary economic references to ‘The Italian Job’ will be

welcomed by its star. Mr Caine has after all stated publically he has no fear of being outside the EU, nor any

shame in being a member of the Brexit “self-preservation society”. In fact let me quote what its producer

Michael Deeley said back in 2002 of the Italian Job, “it was the first euro-sceptic movie”.

8.5% of total

6.9

3.63.2

2.9 2.9 2.8 2.72.4 2.3 2.2 2.1

1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.5 1.5

0

20

40

60

80

100

120

USA

Au

stra

lia

Ca

na

da

Bra

zil

Ind

on

esi

a

Ru

ssia

Nig

eri

a

Bri

tain

Pa

kis

tan

Ka

zak

hst

an

Ma

lay

sia

Sa

ud

i A

rab

ia

Ve

ne

zue

la

Arg

en

tin

a

Ita

ly

Ind

ia

Alg

eri

a

Vie

tna

m

Pe

ru

Ira

n

Eth

iop

ia

Bil

lio

n,

US

$

0.0

0.5

1.0

1.5

2.0

2.5

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Mil

lio

n

Italy UK



33

Trading-in an ageing partner

The UK ‘trade dependence’ on the EU is much cited as to why Brexit has to be avoided ‘at all economic costs’.

That we trade with our European neighbours is undeniable. However, that this dimension of our ‘trade game’ will

somehow disappear on Brexit and undermine our economy is absurd. It is absurd because were we to somehow

see barriers raised to our trade with the EU post Brexit this would do more harm to those remaining within the

EU than us. I say this because the UK runs a deficit. It is also absurd because it assumes the EU is a flourishing

export market for the UK; the evidence plainly shows it is not; indeed, it is getting worse. And it is absurd because

it fails to recognise the success the UK has been enjoying over recent years in trading in goods and services

beyond the European Union.

Were the UK to continue within the EU then each passing year of its tenure would see the share of its trade flows

to the EU fall as it engaged ever more beyond it. This is not a fanciful prediction but one entirely consistent with

what has been seen over recent years and with any sensible set of global growth forecasts.

Chart 21: UK trade engagement with the EU Chart 22: Share of UK exports destined for “EU 19”


-100

-50

0

50

100

150

200

250

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

£ b

illio

n

Balance Exports Imports0

10

20

30

40

50

60

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Ex

po

rts,

% s

har

e

17. Chain reactions

I have written elsewhere that my favourite current euro-zone member to voluntarily leave the currency bloc -

in a managed way - is Finland. I maintain that it would do so to form a new – in fact a renewed – currency

union with its Nordic neighbours, Sweden, Denmark, Norway, possibly even Iceland. If in endeavouring to

forge a Nordic currency Finland was told that its membership of the EU was untenable, I have little doubt that

it would opt to leave, nor do I doubt Sweden and Denmark would follow it out of the EU door.

My reasoning here is that Finns are becoming increasingly frustrated as events turn from one crisis to the next

across an increasingly fractious and disunited European “Union”. Indeed the frustrations of the Finns are being

shared by a growing number of Danes and Swedes. If I am right, a schism looms between ‘The Nordics’ and

the EU. Matters here are complicated because of feedback loops. If Brexit were to happen first, I am

convinced the likelihood of some form of fission within the EU involving its Nordic members would increase in

a sort of chain reaction. Alternatively if Brexit were to be averted, I imagine the question of our membership

would be raised again as others start to question theirs.

In short and continuing with the nuclear metaphor, as it is the EU is structurally unstable. Even if the UK’s

IN/OUT EU referendum results in our continuing as members this will not stop others across the Union being

confronted by their own misgiving about continuing within it.

Returning to our referendum on June 23rd

, some are claiming that Brexit will be averted because the EU

provides superficial concessions to placate enough UK voters that they opt for continuity. This cynical view

flatters the EU and its bargaining position. I for one am in little doubt that those in authority within the

European Union are on the proverbial back-foot. They are under pressure on a number of fronts. These

pressures will only intensify as the asylum issue becomes even more troublesome, and as the “green-shoots of

economic recovery” are trodden underfoot. As well as increasingly wayward Nordic members, the EU

technocratic ‘hierarchy’ will face growing dissent from the likes of Hungary, Poland, Bulgaria, Croatia and

other more ‘recent’ recruits. In short, in the event Brexit is averted, those enthusiastic of our EU membership

should hold back on celebrating the future of the EU and our place within it.



34

Schools OUT for the failing EU

In my efforts to make the case that the UK should Exit the EU, I have drawn upon the occasional

allegory, parable and simile. In this regard I consider myself in good company.

The two-term Mayor of London and forthright ‘Brexiter’ Boris Johnson recently compared the UK to a

prisoner who had the chance to escape to the ‘sunlit lands beyond’ the EU. This analogy of course begs

the question how we found ourselves incarcerated in the first place? Another analogy is one of an

increasingly fractious marriage, the inference being that the UK and EC need to avoid a messy and

expensive divorce in favour of a more open marriage. Anyway, if their use in any way helps raise

awareness of the merits of Brexit, I make no apology for employing metaphor after metaphor and even

mixing a few.

As a parent my child’s schooling means a great deal. And it is in the context of demanding a creative,

productive and suitably disciplined educational environment for our children that I will make the case

for taking the UK economy out of the failing EU institution.

If they were treated as exam results, then economic metrics being recorded widely as the EU indicate,

all too clearly, that the institution is failing. Rather however than accept the ‘special measures’ and

structural reforms necessary, the European Community’s technocrats are blithely insisting all can be

fixed by higher school fees. But things ARE fundamentally wrong. The problems are most notably in the

‘upper-school’ where the euro-zone pupils are performing extremely badly, this despite the promise to

extend all the means necessary to improve matters. Indeed, ever more liberal doses of money -

Quantitative Easing - are failing to lift performances. To make matters worse, whilst some pupils are not

formally excluded, they are being marginalised and punished; becoming more disruptive as a result.

Consider the austere treatment of the Greek pupils, which is practically Dickensian in nature.

Returning to general matters rather than encourage healthy competition and rivalry, the EU’s teaching

style is towards forced conformity. This said, there are certain pupils who are performing well. Their

success, however, is the result of putting extra work in; quite literally, as reflected in an impressive

report card for the UK labour market. This success has, however, led to envy amongst other parents.

But to repeat the UK’s economic success has come about not because of it being in this particular

institution, but despite it. This said, the longer the UK wears the EU school tie (sic), the more it will be

restrained.

Although frustrations have been made clear to the head and her senior staff by the UK and others,

these have been dismissed as the demands of selfish and pushy parents. The simple truth is that, of

course, we are self-interested, and all the more so when it comes to our children and their progress.

This accepted, seemingly self-interested demands being made on behalf of each pupil would if acted

upon result in better standards for all, and improved results for many.

As much as parents will pressure for change, there comes a time when they need to accept it will not be

forthcoming, or not to the extent they consider necessary. At this point, those who have the ability to

remove their child will do so. This is where I shift from the metaphor to reality.

When we cast our votes on June 23rd, please bear in mind we have the means to take ourselves from a

catchment area filled with under-performers, to one where we will be amongst those who share our

ambitions and who we can work with rather than struggle against.



35

18. Words on Brexit from Outside it

We have already heard Barak Obama’s encouragement that Britons should hold on within the European

Union. Specifically, in June last year he publicly claimed the EU is stronger with the UK as a member, following

on from this flattering observation by adding the barbed warning that the UK would “lose influence” were it to

exit.

Now, whether the US President makes any further observation remains to be seen. My suspicion is that the

secure phone line between Downing Street and The White House has been used to make clear that he has

commented enough. There is of course the chance Presidential hopefuls wade into the debate, both Democrat

and Republican. Indeed, despite their otherwise contrasting views I imagine all would be united in echoing the

opinion of the man they hope to replace in the White House; the United States would like the UK to remain in

the EU. As to why they hold this view here are two possible explanations. One is that the US indeed wants to

see an EU strengthened by the presence of the UK. Another, admittedly more cynical view is that rather than

“lose influence” Washington is concerned the UK will be empowered by being free from the European Union,

leveraging ever more on its extensive Commonwealth network and forging ever closer ties with the likes

China.

Interestingly, on the theme of “outsiders” proffering - self-interested - views on how Britons should vote some

of the more notable contributions have come from a raft of financial behemoths, unanimous in arguing loudly

in favour of continuity. Of course whilst ‘outsiders’, the likes of Goldman Sachs operate extensively inside (sic)

the UK’s financial system and have a right to publicly express a ‘firm’ view on the referendum, in a way one

would never expect them to make say ahead of a General Election. Indeed, given the ‘intellectual fire-power’

it is claimed is resident in that firm and others across the financial services sector, one might consider it

negligent for ‘informed’ views not to be forthcoming. To those listening keenly and reading carefully what is

being provided as an opinion from this quarter I would only say remember that there are vested and so

conflicts of objective interest, at work. Indeed, if I wished to be particular brutal in my assessment of what

investment banks recommend as to how we vote in the approaching referendum I would point to the fact

these were the same institutions recommending we buy the likes of Enron shares, Icelandic sovereign debt

and commodities at moments when the wisest thing to have done would have been to exit such markets.

Let me close with the decision by ‘our very own’ HSBC not to exit London – where it has been domiciled since

1993, having shifted from Hong Kong. We must bear in mind that this has been a perennial will it/wont it saga.

Of course, many believed relocation, were it to have happened, would have being influenced by uncertainties

over the UK’s role within the European Union. I always cautioned against exaggerating any such influence. We

now know that it will be staying with no obvious caveat in its decisions concerning Brexit. Even if HSBC had

returned to Hong Kong it would, to my mind, have simply confirmed that Greater China is where the real

growth action ‘is at’. As for the idea that HSBC has the ability to “move people between London and Paris” in

the event of Brexit one need remind its management that last year 30,000 French nationals received national

insurance numbers to work in the United Kingdom. And in remaining in London, HSBC has shown that it can be

close to China even whilst based in the UK, confirming my point that the world is about economic propinquity

not proximity.

TOSCAFUND February 2016

19. Britain’s impressive Common Wealth beyond Europe

Much is made of the EU’s scale: Its scale of population, in GDP, and its sheer geographic expanse. There is no

denying that the numbers are large. The EU covers 28 sovereign nations with a population in excess of 500

million, spread over 4.3 million square kilometres wit

that the European Union’s sizeable critical mass affords the UK benefits when the EU acts as its ‘agent’, far

more so than were it to represent itself. If I wished, I could dismiss the claim there is

citing the idiom “he travels fastest who travels alone”. I will not do so

strength in numbers, consider these figures; 53 nations whose combined population is 2.3 billion spread

across 30 million square kilometres and with a combined annual GDP of $10 trillion. Now, some will see the

last figure as surprising given it is just barely over half the GDP figure cited for the EU. Well, the important

point is that whilst the EU’s $18bn GDP figure

impressively upwards. What then is the collection of nations whose numbers figure so impressively when

compared to the EU’s? The Answer is the Commonwealth of Nations known to most as the British

Commonwealth.

Map 3: British Commonwealth

Source: Wiki Creative Common License, National Statistical Offices,

political status. Commonwealth realms are shown in blue, republics in

Of course, in all the talk of memberships of the European Community and British Commonwealth the global

growth behemoth China, is not in either. This said

of the latter from 1934 until 199

connections with the UK. And not only do I not expect Brexit to loosen Anglo

will strengthen regardless, as Beijing engages ever more with the UK as a complementary hub to its local

activities to educate its young and operate from, given the convenience of

Unlike the parochial nature of the European Community, the

entire globe, boasting at least one member on every continent. Unlike the European Community, whose

members have little in the way of natural resources the Commonwealth is blessed with minerals in

abundance, from Zambia and Namibia across to Malaysia. Unlike the EU

Commonwealth is ‘youthful’. True, the Commonwealth contains relatively poor nations. No less true,

however, is that many of these have been developing impressively

notably here India. This said, the Commonwealth also contains some of the world’s most advanced nations

and wealthiest nationals; just consider the likes of Singapore, Canada, Australia and New Zealand. Les

forget the UK is not alone across the EU in also being a member of the Commonwealth; Cyprus and Malta join

it in this duality (Ireland left the Commonwealth in April 1949).

Discussion Paper

Britain stands up – Better to exit European Union

36

Britain’s impressive Common Wealth beyond Europe

the EU’s scale: Its scale of population, in GDP, and its sheer geographic expanse. There is no


million, spread over 4.3 million square kilometres with a combined annual GDP above $18 trillion. We are told

sizeable critical mass affords the UK benefits when the EU acts as its ‘agent’, far

more so than were it to represent itself. If I wished, I could dismiss the claim there is ‘strength in numbers’ by

citing the idiom “he travels fastest who travels alone”. I will not do so, however, because there is indeed


quare kilometres and with a combined annual GDP of $10 trillion. Now, some will see the


the EU’s $18bn GDP figure is hardly moving higher, the $10bn number is moving

. What then is the collection of nations whose numbers figure so impressively when


National Statistical Offices, Bloomberg, Toscafund – Note: Members of the Commonwealth shaded according to their

political status. Commonwealth realms are shown in blue, republics in pink, and members with their own monarchy are displayed in green

in all the talk of memberships of the European Community and British Commonwealth the global

growth behemoth China, is not in either. This said China’s Special Administrative Region, Hong Kong was part

of the latter from 1934 until 1997. In fact China’s connections with the EU are largely because of its

ot only do I not expect Brexit to loosen Anglo-Sino links I am convinced these

less, as Beijing engages ever more with the UK as a complementary hub to its local

activities to educate its young and operate from, given the convenience of its time-zone and language.

Unlike the parochial nature of the European Community, the Commonwealth of Nations is spread across the



m Zambia and Namibia across to Malaysia. Unlike the EU’s generally ‘aged’ demographics, the


however, is that many of these have been developing impressively and becoming more enriched by the year,

the Commonwealth also contains some of the world’s most advanced nations

and wealthiest nationals; just consider the likes of Singapore, Canada, Australia and New Zealand. Les

t the UK is not alone across the EU in also being a member of the Commonwealth; Cyprus and Malta join

it in this duality (Ireland left the Commonwealth in April 1949).

Better to exit European Union

the EU’s scale: Its scale of population, in GDP, and its sheer geographic expanse. There is no


h a combined annual GDP above $18 trillion. We are told

sizeable critical mass affords the UK benefits when the EU acts as its ‘agent’, far

‘strength in numbers’ by

because there is indeed


quare kilometres and with a combined annual GDP of $10 trillion. Now, some will see the


, the $10bn number is moving

. What then is the collection of nations whose numbers figure so impressively when


Note: Members of the Commonwealth shaded according to their

pink, and members with their own monarchy are displayed in green

in all the talk of memberships of the European Community and British Commonwealth the global

n, Hong Kong was part

connections with the EU are largely because of its

Sino links I am convinced these

less, as Beijing engages ever more with the UK as a complementary hub to its local

zone and language.

Commonwealth of Nations is spread across the



generally ‘aged’ demographics, the


re enriched by the year,

the Commonwealth also contains some of the world’s most advanced nations

and wealthiest nationals; just consider the likes of Singapore, Canada, Australia and New Zealand. Lest we

t the UK is not alone across the EU in also being a member of the Commonwealth; Cyprus and Malta join



37

So what is my point? Well, those emphasising the importance of the UK being represented by the EU

inevitably understate the considerable scope we have to wield our collective Commonwealth influence.

Leaving the EU should be seen as the catalyst for the Commonwealth to show its true size on the global stage

across which it spans like no other community of complementary nations. Let me quote directly from the

Balfour Declaration of 1926, which effectively forged the concept of our Commonwealth made up of

“…autonomous Communities equal in status and in no way subordinate one to another in any aspect of their

domestic or external affairs, though united by a common allegiance”. For the record, the Commonwealth is

headquartered in Marlborough House, London, and will remain there regardless of whether the UK leaves the

EU.

TOSCAFUND February 2016

20. What China crisis?

Let me reflect on two uncertainties which will become only more loudly voiced before the respective

are finally revealed.

For one, there is the uncertainty over what concerns China is having over Britain

is the spreading ‘market’ concern over China

both distractions.

Let me be clear that I do not think it reasonable to believe those in authority in Beijing or Shanghai are cooling

their investment interest in Britain because they are overly alarmed by the consequences of either outright

‘Brexit’ or an agreement to a more

reason that China will not distance itself economically from the UK the

from its EU neighbours? Well, I believe Beijing has never needed to use the UK as a

the way Tokyo once had to. Let me explain.

Back in the 1980’s Japanese mercantilists could not call upon t

to trade the way China’s now can. Quite frankly if China wishes to export to the EU it is almost unfettered to

do so from its own onshore factories. Things are much different now from thirty five or so years

EU restricted Japanese exports into it, or as it was euphemistically put then Japan showed Voluntary Export

Restraint (VER). This compelled Japanese industrial groups

electronics - into opening factories (trans

States). And because of her ‘supply

largely in the UK that Toyota, Toshiba,

these ‘trans-plant’ factories have continued to expand their capacity even though Japan no longer needs to

‘voluntarily’ restrict what it can export into the EU from its plants at

favoured offshore hub for Japan is the efficiency and flexibility enjoyed by its high value added engineering

sectors. As for the idea Japan’s corporates would depart the UK were it to depart the EU, the reality is that

Toyota, Nissan, etc, would hardly quietly accept any EU attempt to restrict exports from their respective UK

factories (just as neither BMW or VW would not welcome any such penalties to theirs). After all, too much

investment has been sunk and these plants are to

undefended in Tokyo, Frankfurt, Munich, etc.

Map 4: A UNITED Kingdom’s economic topography

Source: Toscafund (* data up to 2014 and **FDI data is 2009

Discussion Paper

Britain stands up – Better to exit European Union

38

eflect on two uncertainties which will become only more loudly voiced before the respective

For one, there is the uncertainty over what concerns China is having over Britain’s EU referendum. The second

concern over China’s very own economic future. I will hope to quickly reassure over


n because they are overly alarmed by the consequences of either outright

or an agreement to a more ‘open relationship’ between Britain and its EU partners. How can I possibly

reason that China will not distance itself economically from the UK the more it sees the UK distancing itself

from its EU neighbours? Well, I believe Beijing has never needed to use the UK as a ‘Trojan horse

the way Tokyo once had to. Let me explain.

s Japanese mercantilists could not call upon the WTO as they can now, to cry foul of barriers

s now can. Quite frankly if China wishes to export to the EU it is almost unfettered to

do so from its own onshore factories. Things are much different now from thirty five or so years


Restraint (VER). This compelled Japanese industrial groups - from its car makers to its producers of consumer

g factories (trans-plants) within the EU (as was the case with VER into the United

supply-side’ reforms and Margaret Thatcher’s other welcoming gestures, it was

largely in the UK that Toyota, Toshiba, et al., opted to invest to establish capacity within the EU. Interestingly

factories have continued to expand their capacity even though Japan no longer needs to

restrict what it can export into the EU from its plants at ‘home’. The reason the UK remains a


s corporates would depart the UK were it to depart the EU, the reality is that

Nissan, etc, would hardly quietly accept any EU attempt to restrict exports from their respective UK


investment has been sunk and these plants are too important to group earnings for them simply to go

undefended in Tokyo, Frankfurt, Munich, etc.

A UNITED Kingdom’s economic topography

Source: Toscafund (* data up to 2014 and **FDI data is 2009-2014) – Note Real GDP is the cumulative growth.

Better to exit European Union

eflect on two uncertainties which will become only more loudly voiced before the respective ‘truths’

s EU referendum. The second

s very own economic future. I will hope to quickly reassure over


n because they are overly alarmed by the consequences of either outright

between Britain and its EU partners. How can I possibly

more it sees the UK distancing itself

Trojan horse’ into the EU,

he WTO as they can now, to cry foul of barriers

s now can. Quite frankly if China wishes to export to the EU it is almost unfettered to

do so from its own onshore factories. Things are much different now from thirty five or so years ago when the


from its car makers to its producers of consumer

plants) within the EU (as was the case with VER into the United

s other welcoming gestures, it was

, opted to invest to establish capacity within the EU. Interestingly

factories have continued to expand their capacity even though Japan no longer needs to

The reason the UK remains a


s corporates would depart the UK were it to depart the EU, the reality is that

Nissan, etc, would hardly quietly accept any EU attempt to restrict exports from their respective UK


o important to group earnings for them simply to go



39

A sinking pound: how uplifting

Graphics showing a ‘sinking pound’ have provided the ‘IN’ campaign with what they consider the perfect

economic symbolism of why ‘financial markets’ are so uneasy with the Brexit threat. Well, I have written

elsewhere, and will repeat here, that far from a weaker pound being a problem for the UK, it is one for the

euro-zone, and specifically the European Central Bank. A weakening pound is providing the UK with the

monetary medicine which the ECB can only now administer with negative interest rates and an expansion in its

QE programme. At a time when central banks are being forced to hit their inflation targets “from below”, we

are witnessing desperate efforts at reflation widely across the developed world. Widely, it may be, but

desperation to avoid deflation is not a problem in the UK, and whilst this is not entirely because of the pound’s

behaviour it is in part a result of it. Those Briton’s frustrated that their savings are not yielding more, should

welcome a weaker pound. Those Briton’s working across it in sectors whose fortunes are lifted as the pound

sinks should welcome foreign exchange markets selling sterling. I could go on and identify economic reason

after economic reason why in the world we find ourselves a weakening currency is to be welcomed. As for

those comparing the pound’s level today with its value against the dollar in the early 1980’s, they need to

reflect on how much the world has changed. Then the problem across developed economies was stagflation,

and a weakening currency was the over-ridding concern. Now, the threat is deflation, and a weakening

currency is to be welcomed. Then the global economy consisted of only a handful of nations. Now we have

world where with the exception of a few nations - most notably North Korea - all sovereign economies are

open for business. Then the UK was a rigid unreconstructed economy. Now it is the prototypical service and

high value-added developed economy, and a template for others to follow. Then we had the EEC which was

useful in bringing down barriers between its members. Now we have the EU which has no focus other that

self-aggrandisement.

Returning to China, let me repeat that its keenness to invest in the UK has almost nothing to do with creating

transplant capacity from which it can export into the EU. Rather it is investing in part so it can capitalise on the

UK’s sound domestic growth. China is also drawn to the UK because it wishes to make it the main western hub

for its financial and business service sectors. China’s increasing engagement with the UK will help in exorcising

the second uncertainty befuddling minds and judgements; that China’s economic momentum will slow to an

uncomfortable pace.

The reality is that what we are seeing across China is a reorientation in its economic growth, a move in effect

from relying on the consumption of households overseas to empowering its own households to do the

consuming. Beijing is set on empowering Chinese households to raise their consumption levels and lift

ownership of durable goods to the penetration rates common across developed economies. This

empowerment requires the lifting of disposable incomes so Chinese families can enjoy the same discretion we

have in the west to spend in restaurants, bars and in travel and leisure more widely. This empowerment will

be made possible by expanding the access to insurance and financial services to ever more households across

China. And all this will, in turn, rely crucially on a close engagement with the UK; an engagement and closeness

which will not necessarily depend on our closeness to our EU neighbours. Also, independent of our closeness

to the EU will be the keenness of young adults across China to study in the UK, lifting their human capital for

the benefit of their future wealth.

Let me close this short section by returning to Japan’s halcyon growth years.

It would be no exaggeration to say Japan’s economic strength through the decades after World War II relied

mostly on its dealings with customers many, many miles away from Asia, to be more specific growing its

exports to both sides of the North Atlantic (a long distance engagement which South Korea would itself also

capitalise on). Through the 1980’s Japan’s financial service sector would also make London their preferred

western hub, just as I expect China will do so, but on an even larger scale and regardless of how engaged the

UK happens to be with the EU. In short, just as Japan’s experiences proved the importance of propinquity over

proximity, so we in Britain will come to appreciate neighbours do not make the best customers or commercial

partners and long distance relationships can prove happy and fruitful ones.



40

21. The Referendum – After It

Once all the ballots have been counted there will, of course, be a losing side. For whilst the margin of defeat

will not necessarily reduce matters to a simple binary outcome; there has to be a ‘losing’ side. Let us then

reflect for a moment on the aftermath for the loser, before considering what might await the winner,

whichever side that happens to be.

In winning all but three of Scotland’s 57 Parliamentary seats in the General Election which followed nine

months after losing the Independence Referendum, the SNP proved to the victor do not always go the spoils.

Indeed, the closeness of the contest forced the coalition parties in Government to join with Labour into

making concessions which will be passed into law as the Scotland Act 2016, providing devolved fiscal powers

far reaching enough that one could claim they will give Holyrood sovereignty over economic policy within the

‘sterling-bloc’ greater than the likes of Greece currently have in the euro-zone.

Some have suggested that a ‘Out’ victory could quickly see the EU offer even more far reaching concessions to

the UK, ‘forcing’ a second vote, just as Ireland experienced with its ‘No’ (June 2008, 53.4% turnout of 53%)

then ‘Yes’ (October 2009, 67.1% turnout of 59%) referendum outcomes to the Treaty of Lisbon. The Brexit

camp need to be mindful that a narrow win might trigger just such an eventuality, and how they might react

one can only guess at.

In the event the outcome is ‘In’, the margin will be crucial. Of course, a resounding ‘In’ is possible, and those

backing ‘Exit’ know all too well this would raise questions over their judgment and end political careers. Such a

prospect will explain why many Eurosceptics will keep their own counsel rather than show their true colours,

our politicians are after all no less risk averse than the average Briton.

Much more likely than a resounding ‘In’ is an outcome similar to Scottish Independence Referendum. As

mentioned earlier in the event a sizeable minority were seen to be dissatisfied with the ‘European Project’ the

victors might find theirs was a Pyrrhic success, just as the Unionists have found since Scotland’s independence

referendum in September 2014. Indeed, having performed remarkably well in last May’s General Election the

SNP are set to enjoy a surge in this May’s elections for the Scottish Parliament, reinforcing the view that a

second Independence Referendum should not be dismissed over coming years. The case for a ‘second go’

would only increase in tandem with the differential between sentiment towards the EU which the referendum

reveals between Scotland and England, which I touch upon again towards the close of this short section.

What of a resounding ‘Out’? Well, the implications for those across ‘the Establishment’ campaigning for ‘Yes’

would be considerable were they to be convincingly beaten. Indeed just as those brave enough to campaign

‘In’ would see their political careers end with a large ‘Out’ vote, the same would apply were the situation

reversed. The scale of the politicide from a resounding ‘Out’ would however be far greater. And to repeat, a

resounding ‘Out’ could only occur through an overwhelming ‘No’ across England.

Whatever the outcome there will be close scrutiny of the voting patterns, spatially across the United Kingdom,

by age group and indeed by as many cross-sections which polling diagnostics will allow for with any degree of

accuracy. The results of this analysis - the referendum will after all be the largest opinion poll on the subject

ever – will be scrutinised and used by some to argue that say the young are happier in the EU than their

elders, and that England is more Eurosceptic than Scotland and Wales. The reality is that the day after

referendum day will not be the end of the story but simply the opening of a new chapter in the form the UK

takes within itself and within wider Europe.



41

22. No way to build EUtopia (Issue 9 – When the clue is in the name – June 2011)

With its Social Charter and other legislations empowering the individual, the EU has introduced personal rights

as strong as have existed since the most enlightened Greek city states were pillaged by the hordes who did not

share such lofty ideals.

As an employee one can only warm to a restriction to the maximum number of hours one is demanded to

work, the guarantee of a ‘living wage’, immunity from summary dismissal, health and safety protection and

other cushions against the evils of ‘corporate opportunism’. However, as an economist looking at a

competitive world, one has to be realistic.

In reality, when labour market flexibility reduced in one region but not in others so competitive forces will

displace jobs to where workers can be ‘sweated’ more productively.

Of course the migration of jobs requires work to be fungible, something certainly not possible where services

can only ever be provided locally; the case of retail (broadly) and most personal services (the classic barber

example). This, in my view is a very poor defence. The issue here is that too many EU workers involved in the

private sector operate in traded good sectors producing wares just as easily made elsewhere; autos, metals,

chemicals etc. Overlay a less competitive currency to inflated labour costs and the migration of jobs cannot fail

to build.

Some readers may feel my concerns are overdone, seeing rising wages and strengthening currencies across

Emerging Markets as closing the door to further large-scale job migration. In my view this is complacency.

The reality is there will be little let-up in the challenge from emerging nations to EU jobs. Where this is not

enough the EU faces competitive onslaughts from elsewhere. First, there is non EU Europe. Second, a threat

looms from the US like seldom before.

From both across the CEE and the US, the euro-zone faces the threat from currency strength. This will overlay

with another crucial factor. A structural gap has opened ever wider in the cost of doing business between the

EU and non-EU Europe and the US.

The contract between the vast majority of US employees and their employers shows nowhere near the

constraints on the latter as the equivalent across large parts of the EU (the UK has not signed up to the Social

Chapter). When firms cannot readily fire it is not unreasonable to conclude they will not hire as freely.

Similarly, if workers in one region cannot be asked to work beyond a fixed number of hours it is not

unreasonable to expect firms will opt to hire where no such constraint exists.

Chart 12: Zloty/€ Chart 13: Ukraine/€


Now there will be those arguing the EU is no place for firms that endanger and exploit the environment and

their workers. As an economic romanticist I wholeheartedly applaud such sentiments, as a realist I fear them.

When the EU began twenty years ago to build in earnest rights of the individual, the competitive landscape

was quite different. China was a largely closed economy and the EU only really had to consider the competitive

challenge of the US and Japan. Since then globalisation has truly taken hold.

Were it not enough that the EU has raised the cost of doing business in so many other ways, it has added more

costs through well meant environmental legislation. Once again this layer of cost, as well intended as it is, has

been introduced largely unilaterally. It came as no surprise that Germany should be the first major economy to

announce it was deserting nuclear power as an energy option. Neither does it surprise me that Europe remains

closed to the idea of genetically modified foods. Europeans may not be self-sufficient in energy or food but

they are over-supplied with romantic ideals.

0

1

2

3

4

5

6

1999 2001 2003 2005 2007 2009 2011 2013 2015

0

2

4

6

8

10

12

14

16

18

1999 2001 2003 2005 2007 2009 2011 2013 2015



42

23. Re: turn to a Europe of the 1930’s? (Issue 11 – Discussing the past and future –

September 2011)

Few can take issue that looking out across Athens from the vantage point of the Acropolis one would be

peering down on a city facing challenges as severe as any outside of occupations, sieges and civil war. In fact,

over recent months there have been times when Syntagma Square looked as if one or all of these events was

taking place. Similarly, it can hardly be denied the Coliseum and Arch de Triumph sit at the centre of the

capitals of two sizeable European states set to face their harshest tests outside of wars and their aftermaths.

For all its rich history, I have to say that Europe's outlook is alarmingly poor, poor that is unless it can respond

forthrightly to political and economic tests - one feeding the other. At this moment there is no evidence it is

capable of doing so.

For much of the post-war period the trend has been towards forging a centrally governed European entity.

Whilst the pace of this has varied, it has been unrelenting. It has also been rather selective. Neither Turkey nor

Russia have been seen as worthy of inclusion in the "European Club". Such has been Europe's strange

selectivity; it has tussled with Russia for influence in Kiev, despite the questionable trophy value of Ukraine as

a member of the elitist European club. For their part, nations across the Balkans were assured applications to

join the European club would be welcomed. They, however, were told strict initiation procedures would have

to be adhered to. Trying to meet these conditions invariably acted to create more problems than they were

aimed at solving. More worryingly, ethnic tensions across the south western Balkans have been patched over

rather than truly remedied, problems as unsettling as the tribalism engulfing Libya and both possibly leading

to fragmentation.

Some European nations have of course stood aloof from the "merger project". The UK and Norway have

resisted efforts by those within and without to draw them ever closer to policy set from within the

Brussels/Strasbourg/Frankfurt triangle. For its part, the UK stands outside the euro and has selectively opted

in and out of EU merger policies. As for Norway, it is not even a member of the EU, from which Switzerland

too has stood aloof.

Aloof they may be from many EU policies but the UK, Norway and Switzerland have all been part of a wider

European phenomenon, a movement of people unprecedented in peacetime. Not only has humanity shifted

around Europe to an extent not seen since the end of World War II, it has entered from elsewhere; from far

flung regions, sharing little cultural commonality with Europe and often triggered by the actions of Europeans

themselves viz. the invasions of Iraq and Afghanistan and more recently ‘interventions’ in Libya.

It is impossible to consider Europe’s past, present and future without mentioning the events in London on

7/7/05, Madrid 11/3/05 and Oslo most recently on 22/7. Each occurred against the backdrop of a period of

broad European economic strength; strength I must add which is unlikely to be enjoyed again. Chillingly these

acts of terror were orchestrated by fanatics from polar extremes, whose constituencies chillingly appear to be

growing.

Across Europe centralists will find themselves challenged by those at both ends of the political spectrum to an

extent not witnessed since the years leading to WWII. Readers who consider these prophecies exaggerated

should be aware they are based on the prediction Europe faces economic hardships not seen (in peacetime)

since the 1930s. What emerged then should be seen as a warning of European phobias that have been hidden

rather than eliminated.

Those who consider Oslo's recent experience as exceptional should not be so complacent. Whilst the vast

majority of us reacted to the actions of Behring Breivik with revulsion, there can be no denying that in some,

all too many, extreme quarters across Europe his behaviour has been welcomed. We may not want to believe

as much, but this is the sad reality. If an affluent Norwegian can hold such views, one fears for a Europe across

which unemployment is set to sweep in a way not seen in many decades. As compelling as the argument that

inward migration of labour delivers economic benefits, this has been confused by “asylum seeking”, a largely



43

well intentioned, policy whose implementation was poorly thought out. In not allowing asylum seekers to

work, it has bred resentment with the asylum seekers and their hosts.

Here are my ten key and sadly somewhat chilling predictions, for coming years:

1. Having seemingly cemented their economies and currencies to the pre-2004 EU15, some of the 17

who joined since then will come to see their fortunes better served by these links being loosened. Indeed, do

not be surprised if some sever them entirely. Even within the old EU, one cannot dismiss the possibility the

Nordic states begin to forge their old elite union. Remember, neither Sweden nor Denmark is formally

euroised, and Norway is not even in the EU. Iceland too will see its interests better served, and its economic

pains eased by attachment to this group. The Baltic States too may choose to reconsider their economic

alignments.

2. Russia is set to reclaim some of the influence over parts of Central, Eastern and Southern Europe it

lost over the last two decades. For its part Turkey, will realise it had a close escape when its overtures to enter

the EU were not welcomed. For Spain and Portugal, ever closer relations with South America will be used to

mitigate for challenges being faced themselves and their neighbours.

3. Nationalist parties are set to find an increasingly loud political voice across Europe. Whilst this

development could be most worrying across the Balkans, it will not be confined there. Protectionism, against

both foreign goods and peoples, will gain ever greater support as the arrivals of both are targeted as to blame

for Europe’s ills. Ethnic tensions could resurface across the South Western Balkans. Before too long we will

realise borders across that region are but sketched in pencil. Military conflict, which Europe has not suffered

for over a decade, could return.

4. The idea Germany will be proof against Europe’s wider problems is set to be exposed. Not only will

the competitive edge of its important export sectors be chipped away if the euro once more strengthens

against the dollar and yen, it will have to cope with more competitive neighbours. Poland could quite possibly

join other economies across the CEE in devaluing. Weakening internal markets across Europe will prove a

strain on a German economy which still relies on Europe for over one-half of its exports. In Germany too,

political extremism threatens to resurface.

5. The premium attached to nations that have kept something of an arms length from the “European

super-state project” is likely to increase. Do not be surprised if the Swiss franc and Norwegian krone stride

ever higher against the euro, and sterling joins them; whatever efforts central banks make to hold their units

down. The UK in particular will find itself the destination for migrant workers, some leaving their homelands

for the first time, others evacuating economies that had been their first migratory foray. The United States and

Britain have in the past benefited from those with valuable skills abandoning Continental Europe – often after

they were victims of bigotry. So they could, again, find themselves again benefiting from the return of old

Europe’s neurosis to “outsiders”.

6. For all the talk it is set to dissolve, it is highly improbable the euro-zone will suffer defections or

expulsions, this said, a departure is always possible, however improbable. The elements of 1 (the emergence

of an ever more formal Nordic economic union) and 3 (The rise of the True Finns party) could conceivably see

Finland “opt out” of the euro. There is also a powerful case for Ireland “returning” to sterling.

7. Within three years the ECB will be imitating the behaviour of the Bank of Japan in trying to remedy

deflationary conditions. It is set to enjoy the same success. As the world weans off its appetite to spend and

save in dollars and ahead of viable alternatives being available, the euro looks certain to rise against it. As the

euro strengthens against the dollar it is likely to do so relative to the yen. An ever less competitive euro will

force Europe’s trade facing sectors to restructure, a process that will add to their deteriorating labour market

conditions.

8. By 2020 Europe’s demographics will have begun to raise alarm, with dependency ratios comparable

to those of Japan. Having risen against the dollar for much of the previous decade the euro would most likely



44

begin to fall against it. Do not, however, imagine reversals in the euro will deliver much competitive respite to

what looks set to be a less and less viable European mercantilist model.

9. By 2050 it will have become very clear that Europe will be ever less fit for purpose in the global

economy. This will be manifested by its debt markets being deserted and its currency suffering a disorderly

decline.

10. By 2100 Europe will have been reduced to a minor region, economically and politically, in a world

whose power epicentre will have moved many thousands of kilometres to the east. To those who see Europe’s

cultural heritage as protection against such an outcome, I would point to how the Pyramids and Sphinx have

been no such protection for Egypt.

In the autumn we will release a Discussion Paper trying to assess where Europe might be in 2050 and beyond.

Seldom, in a quarter of a century of forecasting have I had a fear of what I might find.



45

24. Lessons from history: 1974/5 (Issue 19 – Oh, Historic Times – February 2013)

Until 2011 - when in a low turnout they rejected Alternative Voting - Britons had only once before been

offered a nationwide referendum. This was back in 1975 when, incidentally they were asked to decide on

whether the UK should remain within the EEC; which it had acceded to only a couple of years earlier.

The pledge to hold a referendum had formed a central plank of the Labour Party’s manifesto for the General

Election of October 1974. For, back then, Labour was the main parliamentary home for sceptics to Britain’s EEC

membership, entry in which had been fervently promoted by Edward Health, the Conservative leader. The

SNP, for its part, had quite a different view of the EEC then from what it does now, backing the campaign for exit.

Returning to Labour’s position on EEC membership, its leadership had made clear that if victorious in the

February General Election, it would renegotiate terms and then put these to a referendum on remaining within

what was essentially then a trade body. However, events did not run as smoothly as Wilson would have wished.

Against a troubling economic backdrop – oil prices surging from October 1973 - the February election saw no

party win a clear Parliamentary mandate. With coalition talks between the Conservatives and Liberals

unsuccessful, Labour, the largest party in Westminster, formed a minority Government, Wilson returning to

no. 10 where he had been incumbent from 1964 to 1970. Intriguingly, it was Edward Heath’s intransigence

over the electoral reform demanded by Liberals under Jeremy Thorpe that put pay to a Conservative-Liberal

Coalition (a mistake David Cameron, then aged six, may have learnt a lesson from).

Figure 1: The UK’s two General Elections of 1974

Source: Toscafund

With parliament hung, it was inevitable the nation would have to once more go to the polls, and it did so eight

months later. The result on October 10th

was a wafer-thin three seat Labour majority. Slim as his hold on

power was, Wilson ploughed ahead with his efforts to renegotiate Britain’s terms within the EEC, ahead of his

promised referendum, slated for June 5th

1975. With the referendum fast approaching, EEC heads of

Government met in Dublin on March 11th

. Their deliberations resulted in concessions which elicited this

response from Harold Wilson:

“I believe that our renegotiation objectives have been substantively, though not completely achieved.”

In the referendum which simply asked “Do you think the UK should stay in the Common Market?” 67% of the

65% who turned out voted YES. In the wake of this endorsement, Roy Jenkins was quoted as claiming:

“It puts the uncertainty behind. It commits Britain to Europe; it commits us to playing an active,

constructive and enthusiastic role in it.”

As we write, uncertainty has returned with David Cameron promising a referendum on Britain’s EU

membership, were he of course to remain in power. Given the parallels with the events of 1974/5, we might

find the explanation for Cameron’s “gamble” by reflecting on this interpretation of Wilson’s offer of a

referendum on essentially the same issue, “He appeased some in his party by holding it, the result, appeased

the others”.

6

7

318

277

297

319

301

13

14

0 200 400 600

February 1974 General Election

Majority

October 1974 General Election

Conservative

Conservative

Labour

Labour

Liberal

Liberal

Total = 635 seats

Ulster Unionist

Ulster Unionist

318 Coalition that never was(Conservative, Liberal and Ulster Unionists)



46

25. Lessons from history: 1983 (Issue 19 – Oh, Historic Times – February 2013)

It is widely thought the Conservatives came out victorious in the General Election of 1983 because of the

“Falklands Effect”. Well, as much as success in the South Atlantic contributed to lifting Tory fortunes, it won

the 1983 Election mostly through the main opposition vote being split.

Back in 1983 an alliance of the Liberal Party with the newly formed Social Democrats received a quarter of the

vote, the Alliance polling the highest share of a third party since 1923 and only a few hundred thousand votes

behind Labour. Crucially, many of their new supporters were drawn from Labour Party ranks, which recorded

its worst showing since 1918. The result was that despite actually receiving a smaller share of the popular vote

than in the General Election of 1979, the Conservative Party achieved their largest ever parliamentary

majority.

Figure 2: The 1983 UK General Election

Source: Toscafund

The lesson of a party’s vote being split is, I am sure, one David Cameron reflected on when he recently

announced that if re-elected he would allow a straight In/Out Referendum on Britain’s membership of the EU.

In this one promise, David Cameron has effectively taken away much of the reason for Euro-sceptical Tories to

“protest vote” for the UK Independence Party (UKIP). And the importance of neutering this threat cannot be

over-stated for Conservative fortunes in the next General Election. As we have seen when reflecting on events

from the 70’s, the Conservatives do not have exclusive rights in using Britain’s role in Europe as a political tool.

There have, of course, been those who’ve expressed the concerns Britain’s uncertain role within Europe will

cause economic harm. Whilst impossible to dismiss this threat, I would suggest that it not be exaggerated.

Indeed, rather than suffer an evacuation of labour and capital in coming years, I remain convinced Britain will

prove the destination of considerable amounts of both, and not a small amount arriving from other parts of an

ever more economically depressed EU.

As much as committing to a referendum was pure political self-interest, Cameron’s announcement just may

concentrate minds in Strasbourg/Brussels/Paris and Berlin about just how much the EU needs a more open

relationship with Britain rather than a divorce, messy for both.

The simple truth is that popular sensibilities within Britain towards its various political parties as well as

perceptions towards Europe will shift with time. And the direction in which these move will be influenced to a

large extent by economic fortunes. And how Britain is perceived by its EU partners will itself change, and will

shift again with both economic developments and the installation of entirely new governments.

With all this change in mind, I continue to believe that in twelve months Britain’s economy will have silenced

those who are still claiming it has a poor growth future. I am equally convinced the EU will enter 2014

struggling far more than the consensus anticipates, and I expect this divergence to continue into 2015 and for

thereafter.

I am convinced the Britain’s hand in negotiating a repatriation of powers from the EU can only strengthen. And

if, as looks likely, political shifts across the EU usher in Governments with nationalist agendas, the mood in

Westminster towards an overly influential EU will be matched by ever more governments sympathetic to

decentralising power.

If proven right in all my economic forecasts, and I accept few will agree with many of my projections, the

backdrop for a EU referendum, were it to go ahead in 2017, will be quite different from what it is today. And I

fully anticipate a referendum will happen in 2017 and one which results in Britons – including Scots, who I

expect vote to continue with Union – agreeing to remain within the EU, but on very different terms to those

that exist today.

0 200 400 600

Majority 326

Labour 209

SDP - Liberal Alliance23

Conservative397

Total = 650 seats



47

26. Pathological thinking (Issue 19 – Oh, Historic Times – February 2013)

The chart below is an unashamedly simple illustration of the paths the UK could follow over coming years.

After all it faces one definite and a potential second referendum, contingent on the result of the next General

Election. And there is even a chance the latter will have to be re-run if the result is inconclusive.

Figure 3: Possible paths (shaded central-case & GDP forecasts based on central-case)

Source: Toscafund (*Outright or in coalition)

Not only can no outcome be entirely dismissed, each will no doubt be given a different probability according to

ones viewpoint. Indeed, the probabilities as we see them today will no doubt change with time. Furthermore,

one could include many other events to the figure, each with their own contingent outcomes, all of which will

have knock on effects; for instance elections across Europe and the political changes that result (even England

winning the World Cup in 2014 would have to be considered as having an effect on “nationalist sentiment”).

Most important of all there is the issue of how events unfold economically, within the UK and across Europe.

Allowing for all the fog, I am committing myself to the blue-shaded central case predictions captured in the

figure above and predicated on the GDP forecasts for the UK and Germany shown in the background.

My central-case (shaded blue in figure 3) begins with next year’s referendum resulting in Scots rejecting

independence. This would of course mean Scotland still being in-parliamentary-play for the next General

Election. When this is held in May 2015, its outcome will turn crucially on economic fortunes, and these I

believe will be more favourable to the Coalition than they currently are. With a following economic-wind and a

UKIP-neutralising EU referendum pledge, I expect David Cameron to still be Prime Minister once the counts are

complete (the Eastleigh by-election on February 28th

will give some indication of how the political-land now

lies). Indeed, I believe Cameron’s prospects will be helped by developments within Scotland even in the wake

of a No to independence and the continuation of Scottish seats in Parliament.

Having failed in its independence ambitions I am convinced the SNP will turn its attention to a dash for Dev-

Max, devolving as many powers as quickly as possible from Westminster to Holyrood. In doing so MP’s

representing Scottish constituencies would be expected, as a matter of protocol, to sit-out “West Lothian

Questions” - Labour would of course resist - and so making even a slim Coalition/Conservative majority

“workable”.

I accept there is a chance May 2015 sees a repeat of February 1974, and a short-lived minority Government

followed by a second vote, and unwelcome uncertainty in between. Only time of course will tell, but as I have

said my expectation is David Cameron will remain as Prime Minister and press ahead with a referendum in

2017 on the UK’s membership of the EU. As for the idea the Liberal-Democrat Party shifts its coalition

allegiance to the Labour Party, well, all I can say is such a change in partnership would require some brace-



48

neck on the part of Nick Clegg. Of course it would be possible with a new leader, but still highly unlikely in my

opinion.

Returning to my central-case I have little doubt the referendum in 2017 will result in a vote for continuity, just

as I expect it to be when Scots go the polls next year. However, I believe the backdrops for these two votes will

be quite different. For Scotland, the decision to remain united will, as I have said catalyse nationalists to

devolve as much power as they can. By contrast I believe the outcome of the EU referendum will be heavily

influenced ahead of it by Westminster gaining considerable devolution of its own.

So much then for my central-case, what some might of course see as the “pigs flying” scenario. What of

others?

However low I personally chose to put its probability, it is still possible Scots vote for independence in 2014

(and then depart the Union in March 2016). In fact in the event of this “tail outcome”, I would be forced to

adjust the probabilities I attach to each subsequent branch of the decision tree in figure 1.

Scottish succession would not actually make me revise lower the probability I attach to David Cameron

remaining Prime Minister. In fact, few can doubt that his prospects would be helped by the absence of Scottish

Westminster seats with their skew to the Parliamentary Labour Party, who hold 41 of the 59 seats north of the

border. The Conservatives, by comparison, hold a solitary Scottish seat, and the Liberal Democrats 11, out of a

total of 650 Parliamentary seats. The schematic below shows how, had Scottish seats been excluded in the

2010 General Election, David Cameron would have held a 9 seat majority.

Figure 4: The 2010 Westminster election with and without Scottish seats

Source: Toscafund

Whilst not making me alter my view on the outcome of the next General Election sans Scotland, the latter’s

independence would force me to revise upwards the probability I attach to the rump of the UK voting to exit

the EU. Let me be clear I am not suggesting it would make it probable, simply less improbable.

My reasoning is that Scottish independence could not fail to create a back-draft of English nationalism (Wales

too seeing an upsurge). In fact, were London’s economy to follow the impressive growth path I expect, and

ripple benefits outwards around England, this too would help the cause of EU-secessionists, claiming as they

would that we can go it alone economically.

As we chose to make what we consider informed judgements on likely outcomes for uncertain events, we

have to deal with each branch as we come to it, as well as allowing for branches appearing we never even

thought of as happening or mattering. This is less about “Flying Pigs” as “Black Swans”.

306

305

0 200 400 600

Conservatives achieve a 9 seat majority

2010 Westminster Election (without 59 Scottish Seats)

Majority 326

Conservative

Majority 296

Conservative

2010 General Election

Conservatives fall 20 seats short of majority



49

27. UK Matters (Issue 20 – On matters United – June 2013)

David Cameron has delivered a draft bill promising UK voters a referendum on remaining within the EU, no

later than the end of 2017, were he of course to still be Prime Minister after the 2015 General Election. Even

with this – contingent – commitment, the chorus crying for an earlier vote is getting louder, the most vocal

being the growing number of sympathisers to the UK Independence Party, UKIP. Indeed, a number of marquee

names from the Conservative Party have made clear they would vote in favour of EU exit, were the vote to

happen now.

Now, quite frankly, food would still fill shelves, the lights would still work and daily routines would continue as

normal, were the UK not in the EU. Even travelling to the Continent would not alter greatly since the UK is

outside the Shengen Area. As for the economic costs and benefits to the UK of leaving, I will not even hazard a

rough guess; and I would challenge anyone who confidently comes up with a figure. What I would claim

however is that Europe is becoming commercially less important to the UK, at the same time as its

participation becomes more important to the EU. For these reasons, the UK’s negotiating hand will grow ever

stronger. And to repeat I do not believe the UK economy would struggle outside the EU. Not struggle that is as

long as it continued to capitalise on the widespread desire to work and study here. I fear however that those

who wish to see an exit from the EU do not share my view towards the economic value provided by migrants.

And I suspect were a referendum to go ahead, it could see voters desiring an exit from the EU not appreciating

that their economic interests would be harmed not so much by departing the EU, but by the almost certain

hermetic sealing of the UK that would coincide, for this is what I fear would result.

Let me draw directly from the UKIP website:

“UKIP calls for an end to the age of mass, uncontrolled immigration. Since 1997 immigration

has added almost four million new people to the British population. Britain is very densely

populated. England, where the majority of people live, is one of the most densely populated

countries in the world. We simply cannot sustain the level of immigration that adds another

one million people to the population every four to five years. This puts an intolerable burden

on our infrastructure and public services. “

Rather than simply argue this is abject nonsense, which it plainly is, I will draw upon the Discussion Paper

“Britain’s Got Growth” released in May 2012:

“What laws dictate optimal or maximum population densities? However densely packed the

population of Britain happens to be today (260 people per square km), it is still less so than

its EU fellow members Belgium (351), the Netherlands (393) and Malta (1300). It is worth

noting that the Channel Islands, hardly a place known for social unrest, have a density close

to 800. Moving into even more compact space, we have Hong Kong (almost 6500). Now

however ‘uncomfortable’ it becomes at times living in Hong Kong, it performs remarkably

well despite its density. Indeed, we could claim Hong Kong’s economic strength derives

precisely because of its density. Let’s return to Britain. The spread of population around

Britain is far from even, London’s density is at 4761 when Lincolnshire’s is 147.

Were Britain to move to the density currently being recorded in the Netherlands, our

population would be 100 million. And quite frankly I see no reason why this should prove an

‘uncomfortable’ number. Britain will neither sink under the weight of a growing population

nor be certain to suffer growing social unrest in its wake. With improved transport

infrastructure, Britain will figuratively get small and literally ‘fill-out’. The development of

such non-regionally centred sectors as education will help drive this process. So too will

‘economies of population scale’.

As populations grow, so sectors can develop that grow with it. A call-centre can be located

anywhere apart from where it cannot be staffed. This is where a growing population

correlates positively with economic value added per capita. This all of course ties in with

housing since one cannot drive population higher without a commensurate rise in the supply

of accommodation. The issue here is that unlike native Britons who are rather immobile

around their country, immigrants tend to be considerably more flexible where they settle.

We have seen this over recent years and will continue to experience it in the years ahead.

The future of Britain as we see it at least is a nation with a growing population, whose



50

density will head ‘comfortably’ higher because it does so proportionally more quickly across

less densely populated areas.”

Let me return to the theme of a referendum on the UK leaving the EU.

As I noted in the last Issue, this is not the first time a referendum on the UK’s membership has been agitated

for and concessions won as the threat of exit has increased.

Close on 40 years ago, the UK’s electorate voted on whether to remain within what was then a much smaller

and essentially North-West European economic club. In the referendum on June 5th

1975 voters were asked

“Do you think the UK should stay in the Common Market?”. The result was 67% of the 65 percent who turned

out voting YES, translating into an effective rate of 43.5%, considered mandate enough to remain within the

EEC.

Ahead of the vote back in 1975 Harold Wilson exploited brinkmanship to elicit concessions for the UK

(although the debate still rages on how valuable these actually were). In the same way I am convinced David

Cameron can negotiate. Indeed, as I have already suggested Cameron’s bargaining hand is far stronger than

Wilson’s was. I am extremely concerned however that those demanding a referendum want the UK out

regardless of even the most favourable revised terms. And I suspect this group have a sub-text which is

economically dangerous for the UK.

Frankly, I fear the agenda of those demanding the UK’s exit from the EU has less to do with British courts

being subordinated in legal issues to Strasbourg, Westminster losing legislative sovereignty to Brussels or

“The City” being harassed. Rather I suspect the basis of anti-EU sentiment is anti-immigration. And this

thinking is to me at least one of the most worrying threats to the UK economy.

The overt text for many of those who demand the UK exit the EU is for immigration to be narrowed to a trickle

from its recent fast moving stream (chart 3). The complaint is that immigrants far from being a benefit simply

burden “our” benefit system. The intolerance of immigrants because of their “net economic cost” has however

no reliable evidence to support it. And what exactly is there to be intolerant of? Against arrivals from overseas

providing tenants for landlords, customers for retailers, workers for employers and tax revenues for the

Exchequer? Against immigrants who have enriched many of the UK’s indigenous population and continue to

do so?

Chart 1: UK Employment & forecasts

Chart 2: UK car imports vs. exports

Source: Office of National Statistics (ONS), Toscafund

That undesirables also happen to enter the UK is something I do not deny. This reality accepted the wheat far

outweighs the chaff; large-scale immigration freshening what would otherwise be a stagnant UK labour pool.

As for the idea the record numbers of workers born overseas are crowding-out Britons from the labour market

I would point to vacancy numbers which are rising, and now above 500,000 for the first time since late 2008

and employment itself is robust, with more workers than ever employed in the private sector. More generally

the much maligned British economy is performing remarkably well, remarkably well that is under the

circumstances of a public sector drawing back spending, and remarkably better than almost all other

mainstream European economies. After all service sector activity and employment (chart 1) is at an all time

high and so too jobs in London’s financial and business services sector (chart 41). Across in manufacturing the

16

21

26

31

36

2030 Q1

2025 Q1

2020 Q1

2015 Q1

2010 Q1

2005 Q1

2000 Q1

1995 Q1

1990 Q1

1985 Q1

1980 Q1

1975 Q1

1970 Q1

1965 Q1

1960 Q1

Mill

ions

Total UK Workforce Total UK services

0.0

0.5

1.0

1.5

2.0

2.5

1998 2000 2002 2004 2006 2008 2010 2012

Tra

de V

alu

e,

3m

ma,

£ B

illio

ns

Export Value Import Value



51

UK currently assembles for export more cars by value than it imports (chart 2). This is quite a boast when one

considers that private new car sale volumes are back above “pre-recession levels”, increasingly fastest outside

London. House prices too are rising, and again not confined to the South East. For its part new homebuilding

activity is increasing and UK construction more widely is past its worst.

Of course UK wage growth is muted, a development often put down, with a tone of bitterness, to competition

for work from immigrants. Such modest wage inflation however will ensure interest rates stick at historic lows;

not welcomed by savers, but a boom to borrowers. And let us not forget more Britons are landlords to others

than ever before, most enjoying generous rental yield as a result. It is on the last observation that one comes

back to confused thinking towards immigration.

Even some of those with UKIP sympathies are landlords whose tenants are recent arrivals. And most of their

tenants, so unwelcome to those they compete for work with, have provided cost savings to buyers of their

services, all the more curious since here again some have UKIP sympathies. And one is inclined to warn such

people to be careful of what they wish for. Rather than view migrants as cuckoos or magpies, invading our nest

or stealing from it, we should see them, or certainly the majority of them, as golden geese.

I have made clear in what must seem endless written research how the high net immigration recorded by the

UK over recent years has delivered an unambiguously positive economic effect. It has after all delivered a

welcome boost to consumption, whilst simultaneously providing a willing and affordable workforce, often in

sectors which had long suffered a shortage of labour. Let me quote again from previous research, this time

from Britain’s Got Growth part 2:

“The boost to Britain’s prime-age population will lift the number of births being recorded

across it, and as it does will with time shift the emphasis of population growth from

migration to fertility (charts 3, 4 & 5). Against such a favourable demographic backdrop

Britain’s domestic facing sectors cannot fail to benefit. Arrivals will after all prove consumers

as well as producers. They will satisfy some of the staffing needs of the internal economy as

they provide part of its consumption. They will keep wages competitive but create demand

for property and lift home prices and rents.”

Chart 3: UK net migration & forecasts

Chart 4: Birth rate comparisons & forecasts

Source: ONS, Toscafund; assuming the UK continues within the Single Labour Market and no new efforts are made to restrict student arrivals.

Immigrants have helped lift the UK’s birth rate to a level not recorded in modern times (chart 4), and

according to my estimates the UK’s natural annual population increase is heading above 400,000 (chart 5), a

development which would propel Britain’s population to becoming the biggest in Europe by 2050 (chart 6).

Whilst Germany too is certain to be a destination for many EU migrants, their arrival is unlikely to have the

same economic benefits they promise for Britain. Our reasoning has much to do with the backdrop against

which immigrants arrive. For Britain, arrivals will enter what is in effect a domestic facing economy whose

growth is internally virtuous. For Germany, arrivals will enter a mercantilist economy having to come to terms

with trade challenges, many, as we have argued, the result of the penalties imposed across the EU by

Germans themselves.

0

50

100

150

200

250

300

350

400

450

1990-95 1995-00 2000-05 2005-10 2010-15 2015-20 2020-25 2025-30

Net m

igra

tion annualised, 000's

7

8

9

10

11

12

13

14

15

16

17

1990 1995 2000 2005 2010 2015 2020 2025 2030

Cru

de b

irth

rate

(birth

s per 1000)

United Kingdom Germany France United States



52

Chart 5: UK natural population change & forecasts Chart 6: Population comparisons & forecasts

Source: ONS, Toscafund; assuming the UK continues within the Single Labour Market and no new efforts are made to restrict student arrivals.

Returning to migrants, I repeat these provide the UK’s ever growing number of landlords with welcome and

often lucrative rental income and are indeed as important in lifting demand for residential property as they are

in helping build more of it. Of course one of the most popular cries from UKIP sympathisers is that the UK’s

residential market cannot cope with more households. Let me draw once more on Britain’s Got Growth:

“It is frequently put to [me] that an encouraging economic thesis for Britain relying on rapid

population growth cannot possibly be reconciled with a residential market that is chronically

supply constrained. [I] however see no inconsistency. The reason is [the] considerable scope

for dormant residential-supply being quickly added to Britain’s housing stock. And the

catalyst for this will be an increasing opportunity cost of property assets not being worked.

Across Britain but most significantly in London, there is considerable residential wealth that

is untapped. It is untapped because it is under-built or under-let. It may be vacant and have

been so for a long period. It may be lost in probate, in the hands of a thrifty owner, or

amazing as it may sound, part of a large property estate and just overlooked. Whatever the

nature and reason, Britain has what has to be in excess of a million housing units that can be

brought into the residential-market on top of that arriving through new build and on top of

vacant properties in the hands of local authorities. This new supply will not face terribly

demanding planning issues, will often be in properties rich in character and be in exactly the

place the market is tightening rapidly.”

In short, it is no exaggeration to claim that without the scale of migration into the UK over recent years, the

pound would be weaker still and interest rates and the cost of living markedly higher. Yes, migrants have

competed wages down. But as I have argued this has hardly been unwelcome to those paying for more readily

available and affordable labour.

Let me reflect on the notion most arrivals entering the UK are opportunists milking the benefits system. Well,

are we to believe that without immigrants the UK would be free from “state parasites”? Indeed, there is an

argument immigrants dilute this sub class. More generally economic migrants provide the UK with positives,

the list of which I could not do justice to in this short vignette. Let me instead draw on the Toscafund

Discussion Paper from twelve months ago, “Britain’s got Growth”:

“The Government is claiming it will reduce annual net immigration from its recent levels of

around a quarter of a million to tens of thousands by 2015. To us this is a poor economic

strategy. Fortunately it is also a fanciful forecast.

From Greece and Spain to Ireland and elsewhere across Europe, there are many millions of

prime-age adults who in recent years moved around the enlarged EU to wealthier and, at the

time, growing economies. Many of these are now suffering deep and painful austerity.

Whilst some recent migrants will remain, many will not. Those that leave may well chose to

return “home”. The likelihood however is many will move elsewhere across the EU, and

Britain is certain to be targeted by a great number. In Spain alone, for instance, there are

over one million Bulgarians and Romanians. Indeed, we anticipate it will not simply be

Romanians and Bulgarians decamping Spain but some Spaniards. Similarly, it will not only be

Poles and Lithuanians et al. departing Ireland for Britain, but the Irish themselves. We also

expect Greeks to join emigrants from Greece, to escape from the deep austerity sweeping it.

0

50

100

150

200

250

300

350

400

450

1990-95 1995-00 2000-05 2005-10 2010-15 2015-20 2020-25 2025-30

Natu

ral in

cre

ase

annualise

d, 000's

0

10

20

30

40

50

60

70

80

90

100

1550 1600 1650 1700 1750 1800 1850 1900 1950 2000 2050

Millions

United Kingdom Germany France



53

Some will, of course, claim that sharply higher net immigration to Britain will simply mean

sharply higher unemployment. Not so, certainly not structurally. As populations grow so

does employment; after all unemployment rates are very often lower even when economies

have doubled or trebled in size. Most immigration is economically accretive. Arrivals provide

demand for homes, goods and services and are a positive in so many other ways. There is

more than a little irony hearing complaints over the employment threat posed to them by

immigration, from the jobless who have plainly not wanted to fill long open vacancies. Sure

there will be chaff arriving with the wheat, but the balance has invariably been

overwhelmingly towards the latter.

If one development captures in the popular mind Britain’s transformation, it is the ubiquity

of “the foreign builder, plumber and carpenter”. To many, this is modern Britain’s most

glaring failure, depriving its nationals of work and overwhelming Britain’s housing, health

and education services. Worse still some will argue (with some cause) are those arrivals who

do not work at all. Of these some may well be work-shy opportunists. Others however will be

seeking legitimate work, and once successful will prove a positive contribution to the wider

economy. There is of course the issue of asylum seeking. This is not something we will deal

with in this piece other than to say that however well motivated, its implementation has

been woeful; breeding resentment in both hosts and arrivals. Focusing strictly on economic

immigration, we are in no doubt the surge recorded by Britain has provided significant

growth positives. We are equally as confident that inflows from across the EU will continue,

and as they do, should be welcomed.”

So then, if the desire is lower property prices and reduced rents, then a fortress Britain policy will ensure as

much. A little Britain mentality will also deliver higher interest rates, and fewer generous-fee paying students

and tourists. True, the pound will decline and to some degree help improve competitiveness. Whatever

benefit this provides will however be more than offset by rising wages across sectors whose demand for

appropriately skilled workers simply cannot be met without large numbers of recruits from overseas. Whilst

we will be told a “managed migration” policy will be employed, in reality the only certainty is UK employment

will be lower if it leaves the EU’s Single Labour Market (SLM).

For all the Alice in Wonderland absurdities of the EU, the SLM is its finest construction. In fact, just ask any

British construction boss or homeowner looking for a builder how they would have managed without it?

Moreover, those taking issue with mass-immigration to the UK are mostly drawn from the ranks of those who

object to any airport expansion plans and other transport initiatives. The same people would be against the

channel tunnel had it not been built, to proven benefit, close on twenty years ago. The same group who saw

CCTV as an infringement of their privacy, but now welcome it in policing. And it is largely the same group

which lobbied that Hong Kong’s citizens be denied the right to settle in the UK in the run up to its handover; in

the process denying the UK the windfalls which they would have delivered.

Some of those shouting loudest for immigrants to the UK to only be allowed in if they fulfil strict entry

conditions might like to reflect on how successfully their forefathers would have passed through such filters?

Then there is the confused assertion ‘immigrants take our jobs and claim our benefits’, one wonders which it

is, and if both then surely it is the benefit system that is at fault, something for which Westminster cannot

blame Brussels.

I am not being glib but trying to expose the absurdity of the Little Englander lobby. These are not post-

modern-Thatcherites, but post-modern Luddites. If this group gets its way on immigration, I am convinced it

will cost the UK economy dear. Indeed, far from separating the UK from the ills besetting Continental Europe,

the UK departing the EU and exiting its Single Labour Market, would ensure it joins in its misfortunes.

I have cautioned that those promoting EU exit might use this as the launching pad towards somehow

hermetically sealing the UK. This said I would like to end by pointing somewhat reassuringly to the views

expressed by Boris Johnson. Like other luminaries in his party the Mayor of London has suggested he would

vote for the UK to leave the EU, were a referendum to be held today. As unsympathetic as he happens to be

towards the UK’s existing position within the EU, Boris Johnson has been unequivocal in promoting the

economic value provided by large-scale immigration. Fortunately the UK will not leave the EU. I say this not

simply because I believe that were a referendum to be held in 2017 it would result in a majority voting to

continue. I say this because if UKIP does indeed split the - small c – conservative vote it will ensure the Labour

Party returns to power, a Labour Party which has shown no interest thus far into committing to an EU

referendum.



54

28. UKIPNOMICS (Issue 22 – TOSCANOMICS confronts... – November 2013)

I would like to spend a moment reflecting on those who genuinely believe a vote for UKIP is in the interests of

“their” economy and I will cut to the chase. The reality is that a vote for UKIP is a vote for increase. Not,

however, an increase in economic growth, but an increase in inflation, an increase in borrowing costs and an

increase in unemployment. Two things that will however decrease were UKIP to have their way are the value

of the pound and the price of property. In short, if you endorse UKIP ‘thinking’ you are wishing for UK

economic growth to weaken markedly. Indeed, far from separating the UK from the euro-zone, you are

ensuring it joins it in entering a long deep recession.

Let us be perfectly clear, were UKIP to have its way, we would literally become fortress Britain, raising the

drawbridges over which many millions of people and their capital travel – mostly – in, and out of our country.

The UKIP agenda, moreover, is to only raise the drawbridges once it has ejected those deemed unworthy of

being here. For a start, just imagine what this would do to average wages; I think few would predict they

would fall. Indeed, UKIP make much of the ‘unfavourable’ impact immigrants have had on ‘hard working

Britons’, precisely because they have competed for work by offering more affordable labour. Just to make

clear, those of us consuming the services which have been made more affordable by immigrant labour would

have to pay more for the benefit of those whose cosy little worlds of over-priced, and often poorly delivered,

services were over-turned by competition. I am thinking here, not only of builders and chefs, but of dentists

and vets and indeed the entire spectrum of work, aside sadly from a few protected professions.

Whatever else the seemingly ubiquitous Polish plumber happened to be, he was a force for good for the most

of us; of course, most but not all. Let me spend a moment on the traditional British plumber whose fortunes

seemingly turned so sour on the arrival of competition. As immigrant labour began to arrive into Britain in ever

larger numbers and wage demands came down, so too did general inflation – with one notable exception - and

in turn so did interest rates. The most notable exception to the near waterfront move lower in inflation was

the shift higher in home prices and residential rents; lifted as demand outstripped supply, even as the latter

moved upwards. Indeed, some of the immigrant labour which arrived and pulled average wages lower whilst

lifting residential prices and rents, was the very labour employed in constructing new homes.

Chart 1: Population, Britain Chart 2: Number of households, Britain

Source: DCLG, ONS, Toscafund estimates ‘Open Britain’

Of course, in all this frenetic building of homes and indeed commercial space, our British born chippies as

indeed our own grown sparks and brickies were under-bid. However, their fortunes were not entirely harmed.

A great many of those, who found themselves seemingly so poorly served by mass immigration, grasped the

opportunity, afforded by lower mortgage rates and rising rents, to join the ranks of Britain’s ever larger

landlord class. In short, artisans became rentiers, and if they were candid about it, all were grateful for the

change in their circumstances. Without the need to turn up each work day morning to ply their trade in Britain,

all too often in the cold and wet, many indigenous British craftsmen became migrants themselves, moving to

the Mediterranean to live comfortably off their rental incomes. And this made a mockery of the notion that

‘under-cut’ British-born workers suffered universally from immigration. Indeed, in relative low wage sectors

ranging from agriculture to food processing across to hotels and catering, immigrants took jobs which

employers had long sought staff, but had had woefully little interest in the vacancy even from those claiming

to be ‘job-seekers’. Let me return to the idea that Briton’s have been crowded-out of the construction jobs

market. We are increasingly hearing that demand for skilled building craftsmen is outstripping their supply.

50

60

70

80

90

100

110

120

1971 1981 1991 2001 2011 2021 2030 2050 2100

Po

pula

tio

n, m

illio

ns

Population assuming 'closed Britain' Toscafund Estimates

0

5

10

15

20

25

30

35

40

45

50

1971 1981 1991 2001 2011 2021 2030 2050 2100

Po

pula

tio

n, m

illio

ns

Households assuming 'Closed Britain' Toscafund Estimates



55

This tells me there is work enough to go around. Am I over-simplifying matters? No, the reality is that, whilst

those who want to create a Fortress Briton may wish to see the rate they earn on their savings move higher,

for the most of us markedly higher interest rates are most definitely unwelcome.

Let me make perfectly clear, I am not suggesting chaff did not arrive with the wheat - and still continues - or

Britons are not dislodged from work by new arrivals. My point is that in general terms Britain’s economy has

done very well out of mass immigration, enjoying lower inflation and lower interest rates because of it. As I

said, if you vote UKIP you are voting for the confluence of higher inflation, higher interest rates, and a weaker

currency; in short, a weaker economy. As they say, be very careful what you wish for. Let me shift my focus for

a moment to the United States.

You will no doubt think you’ve read everything you need to know about the shambles that is the US budget,

and you are familiar with all the analogies, Nero fiddling whilst Rome burns, the band playing as the Titanic

sinks, etc. etc. Well, when I think of what is going on in Washington, the image that comes to mind is one of

the Republicans and Democrats playing with their toys in an overflowing bath, with the one at the tap end

unwilling to turn it off as the other refuses to pull out the plug; you can guess who is who.

Anyway, as the bath water spills out and seeps into the flooring, the real damage is being done to the

neighbour in the flat below; and the unfortunate occupant is the euro-zone. Because, despite its ebbs and

flows, the dollar has been trending lower against the euro. That an ECB rate cut could only partially reverse the

euro’s recent appreciation against the dollar should tell us all we need to know about how this relative ugly

contest will end. Now, since the only hope of a sustainable recovery across the euro-zone is for it to trade its

way out of its travails, any further strengthening in the euro is hardly welcome. Indeed, those of you convinced

the euro-zone is through its worst might like to reflect on the parlous state of its labour market. The simple

truth is that talk of the euro-zone being through its troubles was at best premature and at worst dangerously

negligent.

Chart 3: Demographics, 2010: Germany vs. GB Chart 4: Population: Germany vs. France vs. GB

Source: UN Population Division, Toscafund. Populations between 1550 and 1900 interpolations of figures for those years as well as 1680 and 1820, reproduced

from “The Growth of Population in Eighteenth-Century England: A Conundrum Resolved”, E.A. Wrigley

So then, as the boys in the bath upstairs continue to play around with their ducks and toy ships, the electrics in

the flat below are being fused, the ceiling is bulging and the furniture is being ruined. And, for the wiser

occupants of this flat, the best option is to move out. Where can they go to? Well, you think the influx of

Europeans and their money coming here has to stop; don’t you believe it. And you think British property prices

cannot possibly continue to rise on fundamentals? Just you watch.

0

1

2

3

4

5

6

7

8

9

10

0-4 10-14 20-24 30-34 40-44 50-54 60-64 70-74 80-84 90-94 100+

United Kingdom Germany



56

29. Britain’s economic birth-right (Issue 24 – Europe in crisis again, as Britain stands out –

March 2014)

I believe macro economics is woefully under taught to undergraduates and even more poorly understood

across commercial finance. Worst still, the economic impact of changing demographics is so understated, it is

all but denied.

True, demographics have tended to change at such glacial speed they may as well be assumed constant for

near, and even medium-term economic forecasting. I would argue that to imagine this remains the case is

anachronistic.

Just as Britain’s rivers have turned from sedate, almost unnoticeable flows, to rapids, so with its demographics.

In fact this is the case across large parts of the world. For emerging economies this is being seen in significant

rural to urban population shifts, most notably in China. Elsewhere, prime-age adults are not moving within

sovereign states, but migrating between them. And this exodus is being recorded in such large numbers there

is an immediate economic impact in the nation being evacuated and the one being targeted.

When prime-age adults migrate across borders they take both their consumption and expertise with them.

They are distressed sellers of assets where they are departing, whilst striving to acquire them at their

destination. This is being seen across Greece and Ireland, France and Spain. Over in Lisbon we are told there

are queues daily to enter the Embassy’s of Angola and Mozambique. Most waiting in these long queues are

Portuguese nationals patiently waiting for the documentation necessary to resettle in the flourishing cities of

Luanda and Maputo, and more widely across these economically strengthening former Portuguese colonies.

Let me repeat a mantra of mine. The euro-zone is de-populating, making its deflation worse. And those

departing it are invariably in their prime and, in leaving for economic reasons, are making already alarming

economic matters all the worse. Let me also repeat that for Britain the economic impact of demographic

change is proving nationally positive.

Arrivals are not simply targeting London, but Britain widely. Arrivals are moreover not liabilities but economic

assets, certainly when measured in aggregate. And alongside those entering from overseas, Britain is seeing

population shifts from within. Not only is London drawing people in, it is defusing those already within it

outwards to “the regions”. Crucially many of those departing it are not doing so because they are economically

distressed but rather because they are being financially opportunistic.

Many of those departing London see an opportunity to lock-into ‘heady’ house prices. To such vendors I say

good bye, and to those purchasing from them I say, good buy, because this is no bubble. Indeed, whilst

residential prices will increase far and wide across Britain, and even with growth in more than a few places

outpacing London, the sheer differential in prices will mean returning to ‘The Capital’ will become almost

impossible, certainly not on a like-for-like basis, or without some windfall (chart 7 and 8).

Chart 7: UK home prices, past and future

Chart 8: UK home prices, more compared

Source: ONS (Department for Communities and Local Government), Toscafund

Alongside those arriving to work in Britain, there is an increasing number of those entering to take up full-time

study; spreading extensively and boosting the regional economies far and wide (and lifting commercial and

residential property values). Britain is also enjoying an increase in the numbers of those wishing to settle in it

for part of the year; wealthy enough to seek out and acquire trophy homes for the purpose. Let me assure

0

200

400

600

800

1,000

1,200

Avera

ge h

ouse

prices, £

thousa

nds

Greater Brighton Bristol and Bath London

0

200

400

600

800

1,000

1,200

Avera

ge h

ouse

price

s, £

thousa

nds

Liverpool-Manchester Greater Nottingham London



57

those unwelcoming of arrivals because of their unwelcome side-effects that I am perfectly aware of the social

costs and burden on infrastructure. The practical point is that this is the very thinking that has consigned Japan

to decades of economic decline. And Britain’s under-invested infrastructure is being upgraded, and as it is, the

building work being performed on it is creating widespread and welcome economic multipliers.

As for the idea that Australia’s approach to immigration is ideal, I warn it is stoking its own socio-economic

problems. And as for recent developments in Switzerland, and the precedent this might provide for Britain, I

say this. Net migration is the difference between numbers entering and those leaving. These have averaged

570,000 and 360,000 each year since 2005 (chart 9). And if somehow Britain’s ‘drawbridge is raised’ to those

looking to enter, there is every chance the number leaving Britain will decline. Moreover, many Britons who

have settled across Europe’s warmest parts will return, adding more colour to Britain’s demographic

appearance.

Chart 9: UK, annual international migration flows

Chart 10: UK, annual population change, by nature


The point which I must stress is that Britain’s economic momentum is being powered by people (chart 10). Our

economy is being driven forward by those entering from overseas; bringing with them human and financial

capital. It is also being moved ahead by those moving within it.

In short, Britain’s changing demographic landscape is favouring it macro-economically. This cannot be said

widely across Europe, where the demographic cycle is vicious rather than virtuous; birth rates falling not

rising, populations contracting, ageing and more impoverished, rather than expanding, becoming more

youthful and wealthier. I complained at the outset over the economic impact of changing demographics being

woefully taught and all but denied in financial markets. I will end with this warning. It has been hijacked by an

equally uninformed political class, some of whom would deny Britain its economic Birth Right.

0

100

200

300

400

500

600

700

1990 1995 2000 2005 2010 2015 2020 2025 2030

Th

ou

san

ds

Emigration Immigration

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1990 1995 2000 2005 2010 2015 2020 2025 2030

Milli

on

s

Natural Increase Net Migration



58

30. Drilling, noun (Issue 26 – Just lots of boring words – May 2014)

It has been a long standing complaint within Britain that there are not enough dentists to go around, certainly

nowhere near enough to serve the needs of NHS patients. And when it comes to private dental work, it is no

exaggeration to claim most Britons have become more nervous of the dentists bill than his drill.

Bills for dental work reached such painful levels through the 2000’s that Briton’s became part of the same

health tourism many object to when Britain is the destination and not the origin of the journey for treatment.

In 2008 alone the dental travel operator Dentist Abroad estimated 70,000 Britons travelled for dental

treatment. This figure is so staggering that it might not seem credible. It is, however, corroborated by the

British Dental Association (BDA) who revealed that half of dentists in the UK had patients who had been

treated abroad. Anecdotally Poland and Hungary were two of the most popular dental destinations. This was

no surprise when according to a 2010 survey by Which? a single crown in the UK cost up to £518 compared to

£160 in Krakow. When Which? considered a dental implant, the saving reached well over one thousand

pounds. What is my point?

Labour markets across Continental Europe are worsening. No surprise then that 125,000 Europeans arrived in

Britain last year in search of work, and to earn in a resurgent pound. And far from these being unskilled a great

many are extremely well trained.

As more workers continue to be laid off than hired across most of Europe so discretionary spending will be cut,

including the painful choice of not visiting a dentist. The reality is that having had to visit the Continent for

more affordable dental work, Briton’s will increasingly find Europe’s dentists flocking to them. In fact the influx

has already begun. Consider these statistics from the General Dental Council register. Between 2007 and 2012

the number of “foreign” dentists practicing in Britain rose by one-third to almost 7,000, accounting for almost

one-in-five of the total. However this is not the full extent of foreign dentists filling a gap (sic) in Britain. If we

include dentists in Britain who have taken the ORE (Overseas Registration Examination, a sort of conversion

course) or whose overseas qualification is recognised by the GDC, then the share reaches almost 30%, all the

more remarkable since efforts have been made to reverse the third of these groups.

Whilst the latest official figures do not extend beyond 2012, I am convinced that last year saw a further

increase in dentists arriving from the European Economic Area (whose nations can work in the UK without

restriction). I expect there was an increase in 2013 of those who passed their ORE so as to practice in Britain.

This year too I expect numbers to rise, and rise again in the next. In fact, as long as Britain remains part of the

Single Labour Market the number of “foreign” dentists practicing in Britain will rise with each leg down in the

economic fortunes of Continental Europe and each leg up in Britain’s. Dentists will not be alone. Evacuating

Europe will be academics, vets, accountants, surveyors, architects and many, many other professionals, adding

economic value to Britain as they make matters worse where they are departing, albeit helping out by

remitting part of what they earn in Britain to those in their family who remain behind; remittances improving

as the pound gains ever more ground against the euro.

Make no mistake, those dentists and other professionals escaping into Britain from across Europe will not all

head for London but disperse widely, settling where their personal fortunes are best served. And this will

reflect the affordability of housing, the competition for work, and the general quality of family life. Dentists,

doctors, accountants, lawyers, surveyors etc. will join existing practices or open entirely new ones. And where

these trained and skilled professionals do settle they cannot fail to raise average incomes, precisely because

their incomes will be above the average of the community in which they settle.



59

31. A land of bread and honey (Issue 29 – My grateful nation – October 2014)

What follows is a purely economic assessment of the effect immigration has, and is continuing to have, on

Great Britain. The focus is what effect new arrivals are having on the balance of demand and supply across a

range of public and private sector services, professions and crafts.

I aim to challenge the perception that somehow we would be better off had the waves of immigrants of the

last decade not hit our shores. To challenge, moreover, what in some quarters has become a stubborn

received wisdom that net immigration is tightening markets to uncomfortable degrees, in particular those

related to heath, education and housing.

I begin with the demands made by those entering Britain for full-time study (see chart 1). This is a group which

in my view is wrongly classified as migrants. Indeed, the exclusion of students from official migration data

brings the figure for net inflows below the 100,000 target set by the Conservatives. Now regardless of them

being classified as migrants, students from abroad in full-time education have very specific requirements.

These are for the most part late teenagers and young adults whose appetite for learning is complemented by

their need for accommodation and all other essentials associated with living away from their families for three

or so years. And far from congregating in London foreign students are arriving far and wide across Britain. And

yes, they do think, behave and speak differently from us; in each instance they are on average better than us.

The reality is that by their very nature those from abroad pursuing full-time study in Britain have backgrounds

superior to the comparable age-cohort of the indigenous population. They are quite frankly not some random

sample of the world’s young men and women. And those who demand we have a points system for those

entering Britain should realise that for student “migrants” this already exists. This is an unavoidable truth

because those ‘migrants’ who enter Britain to begin a full-time course at one of our HEI’s have already been

screened by our Universities and vetted by our civil service. What then of how Britain is meeting the demands

placed on it by students from overseas?

Few can deny that the supply of what is demanded by students entering Britain is being expanded. A great

many of our universities continue to keenly build out their campuses and in tandem recruit academic talent,

hiring from within Britain and far beyond. And those lecturers and technicians attracted to Britain by the

prospect of working in its flourishing HEI’s are not only educating students from overseas but for the most part

our own nationals, improving Britain’s pool of indigenous human capital. They are also of a calibre higher than

the average Briton.

Chart 1: Net-migration to Britain, inc. & excl students

Chart 2: Asylum grants awarded and refused


Property Investors have been equally keen to commit capital in expanding student dormitory capacity. And all

this keen investment is creating welcome work and contributing in no small way to the robustness of Britain’s

labour market and welcome rental income to the growing number of Briton’s who have become landlords.

The reality then is that for the most part the sizeable share of immigration made up of full-time students is not

crowding out Britons from work, but creating welcome work in Britain. True, foreign students will on occasion

visit an A&E department, GP or dentist. When they do there is the chance they are attended to by a doctor or

dentist who only a year or two or so before was a foreign student in Britain just like them. So much then for

student migrants, let me turn now to demands on Britain’s “institutions” and services made by “the others”

migrating to it.

0

50

100

150

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ne

t b

ala

nc

e,

tho

usa

nd

s

Migration less formal study Formal study

0

50

100

150

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Tota

l in

itia

l d

ec

isio

ns,

th

ou

san

ds

Asylum grants Asylum refusals



60

I make no apologies for discussing matters in such a broad sweep, of ALL those entering Britain there can be

no denying that the clear objective is personal advancement. Where migrants can be distinguished is how

efforts to improve their own lot nets out to Britain’s economy as a whole, the balance at it were of an exercise

in felicitous calculus.

From a craftsman or labourer across to a dentist, hospital registrar or factory hand those applying themselves

to work are serving Britain’s economic interests in tandem with pursuing their own. True the seemingly

ubiquitous Polish plumbers and Lithuanian labourers are consuming services. Just as true however, they are

helping to build much needed homes, roads, rail lines and a host of much needed infrastructure. It is true that

some migrants are given tenancies to public sector property. Many others however pay rent to private

landlords, most of whom are Britons.

When migrants attend dentists and GP surgeries - not visits they choose to do if they can avoid them - many

find themselves treated by other migrants.

In all likelihood migrants will use public transport. Quite likely some of the bus or train staff serving their needs

will be fellow nationals.

True, many will drive on “our” roads, roads which however some of their fellow nationals will be labouring to

repair and improve.

Whilst most likely arriving in Britain in their prime, migrants will of course not be proof against ageing. And

with time they will place demands on those public services provided for the elderly and infirm. In the

meantime however there is every chance they will be on the supply-side of these services; relatively poorly

paid and arduous. There is also the prospect those coming to retirement choose to return home. And if they

do draw a state pension from whence they settle, they will most likely have earned the right to it.

Consider next the demands on Britain of someone entering Britain to take up a teaching position with young

children in tow. True, these children will need schooling. No less true however is that in net terms the

immigrants teaching will do so to a class larger in number than their own brood. The same reasoning applies to

a great many other immigrants; the burden they place on Britain is less than the lift they give its economy.

Of those gainfully employed in Britain, but born overseas, many will be remitting part of their income back

home. Some Briton’s will see this as a net loss to our nation. It is not. Indeed, whenever the pound strengthens

against remitting currencies, as it has against the Polish zloty (chart 3) and Lithuanian lit - by 8.5% and 9% over

the last twelve months - it has allowed remittances to be lowered by these respective amounts whilst leaving

the actual sums received unchanged. Remittances can also be viewed as a sign that migrants are sending

capital “home” in preparation for when they return.

Chart 3: Polish zloty per pound

Chart 4: Euro per pound


In my view there is no coincidence that Britain’s economy has surprised on the upside as immigration figures

have themselves remained “stubbornly” high. Indeed, I am convinced the latter has contributed to the former.

I find few assertions more laughable than the idea that high levels of immigration have somehow held back

Britain’s economy.

What then of those arrivals to Britain for whom the overall felicitous calculation comes out in a negative, those

that add less than they bring, if bring anything at all?

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020



61

Quite frankly I have no other answer to how to deal with those whose only aim in coming to Britain is our

exploitation, other than to far more carefully define who should qualify as an asylum seeker, although I fear

we cannot undo the errors of the past. I also share the frustration of many that ‘undesirables’ cannot be

removed because returning them to their native country would somehow violate “their human rights”. Yes,

migrants tend to behave, look and speak “oddly’. Only where ‘odd’ is clearly ‘wrong’, should we however take

action. These issues notwithstanding, I will say that nothing, absolutely nothing, presented by UKIP tells me

they will avoid the felicitous calculus outcome of their blunt “policy” for migration being anything other than a

considerable negative number for Britain.

Chart 5: UK workforce

Chart 6: UK vacancies


There will of course be the claim there must be a strategy of halting “chaff” and so only allowing in “wheat”.

First, the Australian model is to my mind incubating its very own social problems. Second, how can I believe

UKIP and its fellow travellers will be capable of separating chaff from wheat when many are not even

conscious that in any objective felicitous calculus assessment of their net economic value to Britain, they

themselves compute as “chaff”, indeed chavs.

Let me return to those calling for us to follow the “Australian model” of points-based immigration; crediting

points based on bringing to Britain human and/or financial capital. Indeed, to many this seems like an

eminently sensible approach. As sensible as it may appear this “migration policing” policy simply replaces one

set of challenges with another. Let me quote if I may from what I wrote back in 2010 in an assessment of what

I saw then and very much still see now as Australia’s impressive economic outlook. This is the warning I made

in the Discussion Paper “Australia & Japan: The best and worst of the G20”, March 2010.

“I recognise that economic scale creates social tensions, but have avoided getting

involved in such issues in the body of my work. Let me touch on them here. Even as

according to conventional wealth dispersion measures relative inequalities are

narrowed, increasing affluence tends to widen the absolute gap between the top and

bottom of society. Seldom does this fail to breed resentment, and socio-economic

polarisation. Such social tensions are sure to be exaggerated by the sizable but selective

inward migration we anticipate. Because of vetting those arriving will quite literally

start some way up Australia’s socio-economic order. Although their arrival will provide

considerable positives for the wider economy there could be resentment across the

indigenous under-class if they identify immigrants as the cause for their slide down the

relative social-economic order. The irony, if irony it is, of Australia’s selective

immigration policy is that in trying to avoid one set of socio-economic problems it

creates others.”

Those who support an immigration policy similar, or indeed even more restrictive than Australia’s, need then

to accept that by the very nature of this “policy” an average migrant to Britain would be “superior” to an

average Briton. Put differently, rather than an average Briton employing an average migrant, the roles would

for the most part be reversed. Indeed, when I reflected on the wave of students from overseas studying at

Britain’s universities I argued these were by their very nature a rarefied group; from wealthier families and

better educated than an average cohort of young Britons. That we are seeing resentment that these otherwise

-3

-2

-1

0

1

2

3

4

27

28

29

30

31

32

33

34

2000 2002 2004 2006 2008 2010 2012 2014

%

Mill

ion

s

UK Workforce Jobs YoY (rhs)

-40

-30

-20

-10

0

10

20

30

400

450

500

550

600

650

700

750

2000 2002 2004 2006 2008 2010 2012 2014

%

Tho

usa

nd

s

UK Vacancies YoY (rhs)



62

“welcome migrants” are inflating property prices and rents in desirable areas is an early warning of what

awaits if we insist only “superior” migrants need apply.

Let me close by arguing that to have a land of ever more bread and honey you have to accept a growing

number of bees, and increasing need for grain. And with bees you have to accept on occasion getting stung,

whilst wheat inevitably comes with chaff. This brings me to my final point. Anyone who seriously thinks Great

Britain produces indigenous chaff at a rate lower than that coming in happens to be deluded.



63

32. That sinking feeling: UKIP on the rise (Issue 29 – My grateful nation – October 2014)

So UKIP have their first MP, with, it seems, more constituencies set to fall in the face of their escalating

insurgency. Indeed, there seems a chance UKIP’s Parliamentary seats become part of the most unlikely of

Westminster coalitions; UKIP’s collection of erstwhile Tories siding with their old party and alongside Scottish

and Welsh nationalists and Ulster unionists to keep the Labour Party on the opposition benches. Crucially a

Conservative led Government, outright or in coalition, would ensure a referendum is held in 2017 on Britain’s

continued membership of the EU.

In the event UKIP were to be part of a coalition in the wake of the next General Election, we should marvel less

at an “insurgent party” encroaching onto the British political ‘mainland’, as how peripheral this ‘invasion’

proves. For it is certainly peripheral when compared to the more considerable political gains being made by

extremist parties across mainland Europe, from Finland to Greece, in France and most recently in Germany.

And each economic leg downwards across mainland Europe is encouraging the extremists, at both ends of the

political spectrum but most ominously the right.

I would go on to argue that events in Ukraine have been politics being led by economics.

When the EU was flourishing economically it proved a magnet towards which Ukraine swung politically. Then

as the EU’s finances faltered, Ukraine’s political pendulum swung towards Russia, which having been

practically insolvent in 1998 had by 2013 strengthened significantly. The political pendulum in Kiev has not so

much swung back towards the EU but rather forcefully wrenched in that direction.

The reality is that Ukraine is now a pseudo EU state, and as such posses considerable threats. After all, its

sharply weaker currency has made its farms and factories a great deal more competitive. Crucially, what has

and is unfolding across Ukraine is undermining the economy of Poland, a country which on falling into

recession would strike a huge blow to the EU’s “singular economic model’, and threaten its very existence,

unless it is comprehensively revised.

To repeat, already troubling economic matters across the Continent will worsen, and Germany will not be

immune. Rising unemployment will spur on ever more extreme political groups, whose animosity towards

‘outsiders’ makes UKIP’s unfavourable views look tame by comparison. Worsening economics and

unwelcoming political attitudes will quite simply spur on those who are mobile enough to escape Continental

Europe, to do just that.

For fleeing Europeans keen to find somewhere to settle, Great Britain’s ever expanding economy will seem a

tantalising destination. And to turn away these - for the most part - human and financial capital rich evacuees

as the Manicheans in UKIP insist, could only serve to send Britain down the same economic hole mainland

Europe is sinking into.

The reality is that Europeans have evacuated en masse in the past, including from across the British Isles. And

where they have arrived has gone on to economically thrive.

For all Argentina’s recent economic travails it was a century ago one of the world’s elite. It was in fact the 10th

wealthiest nation per capita making European émigrés to Argentina more prosperous on average than those

they had left behind in what was to become a terribly war torn continent.

Chart 7: Populations compared

Chart 8: Emigration from Europe to USA

Source: US Census, Toscafund *Note: Native Americans counted after 1860’s

0

10

20

30

40

50

60

70

80

90

100

1750 1770 1790 1810 1830 1850 1870 1890 1910

Mill

ion

s

France Germany UK US

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

1850 1860 1870 1880 1890 1900 1910

Euro

pea

n e

mig

rati

on

as

a %

of

tota

l

Mill

ion

s

European emigration % of total (rhs)



64

The best example of what immigration can quickly do is the United States. In 1830 it boasted a population of

12 million. By 1850 it was home to 23 million, and in 1880 50 million. The population of the United States

would exceed 75 million at the beginning of the 20th

century (chart 7). This three-fold increase in population –

up 50 million in as many years - was not explained by rapid progenation of Native Americans. It was almost

entirely due to mass immigration from across the Atlantic (chart 8). European migrants increased the

population of the US by a staggering 12% each year between 1860 and 1910 (chart 8, right axis). Those

entering the US came from all corners of Europe, and were drawn across all its religions. Its steep rise in

population was all the more amazing because the American civil war raged between 1861 and 1865.

True, the United States is an expansive land mass. No less true however, most of the settlement to the Unites

States through the second half the 19th

century was along its east coast and mid west, population growth

centred in a few rapidly expanding and ever more densely packed but economically growing cities.

Since welcoming Europeans the United States has seen migrants settle there from all over the world and is

now home to a population of 320 million. The US boasts the world’s largest sovereign GDP and a currency

which is the numeraire of most resources and the prominent store of global wealth. None of this economic

success could have been possible but for immigration, each new wave of arrivals acting to generally enrich the

last. Indeed, a casual inspection of the constituents of the current S&P100 or roll-call of stocks in the Dow

Jones Industrial Average reveals a raft of corporate giants with leading global brands whose founders were in

most cases reluctant migrants from Europe.

And as it struggles to find markets to sell its goods and services Europe is once again reverting to exporting in

ever growing numbers its prime-age labour. Be in no doubt, wherever these peripatetic Europeans settle

economic activity and entrepreneurial endeavour will be lifted. They are off to Africa and they are off to South

America. They are migrating to Asia. Closer to home as long as Great Britain operates within the EU’s Single

Labour Market, many are certain to use its freedom of movement to settle here.



65

33. Referendumb thoughts (Issue 31 – EXITSTENTIAL thinking – March 2014)

Remember the frenetic discussion ahead of the far exaggerated threat which was ‘Y2K’, or the excited

forecasting when we first became aware of the epizootics’ of swine and bird flu, and earlier still BSE? I could go

on and on. Such ‘experiences’ should have taught us a number of things or rather warned us of a series of

biases. One of these is that we exaggerate uncertainty, since we are for the most part risk-averse, behaviour as

ingrained in us as the primal sense of smell. Another lesson we should have learnt is that ‘experts’ will for the

most part compound rather than ease our uncertainty, because ‘experts’ are not only naturally exposed to

risk-aversion but have self-interest in knowing their importance is proportionate to the extremity of their

forecasts. A third piece of heuristic wisdom is that once a looming problem is anticipated, its ‘fully unforeseen

effect’ is mitigated by our – sometimes over - preparedness for it, and the sooner it is anticipated the more the

mitigation. Let me make perfectly clear that I am in no way denying the ex ante seriousness of all the events

mentioned earlier. Rather I am cautioning how early forecasts of their ‘costs and consequences’ were

significantly higher than their outturns proved to be. Indeed, such exaggerated forecasting produces its own

costs is an overshooting in behaviour. Of course it could be argued that unprecedented risk is a catalyst for

ultimate good as with the recent outbreak of Ebola accelerating efforts to develop retroviral drugs.

Whilst what awaits Britain and its ‘current’ constituents is open to considerable uncertainty, it and they have

each shown over time they can successfully adapt to almost anything. With this in mind let me lay out my

particular forecasting stall. It is one where I caution against being over-cautious towards the possibility of

change within Britain, and the position of its constituents within Europe. I stress in particular not to understate

the power of an England, not so much cut adrift from Europe and indeed other parts of Britain, but unshackled

from them and actually empowered as a result.

Based on the work of Professor Richard Rose – and contained in our recent Discussion Paper, “The 2015 UK

General Election Outcome” – my expectation is that though leading a minority Government David Cameron

remains Prime Minister, and in that capacity pushes through with legislation for Briton’s to vote on the

nation’s continuation within the EU. Again keeping with the thinking of Professor Rose, any parliamentary bill

will have to meet with the approval of the SNP whose representation within Westminster – c45 seats – will

provide it with enough leverage to demand and get whatever concessions it demands. And what the SNP will

demand is that ONLY if ALL FOUR nations of the UK vote in a majority to depart the EU can such a move

happen. Now, there is little likelihood that a majority of Scot’s would vote to leave the EU but a real possibility

a – slim - majority of English voters express a desire to do so. Were such a national division to occur, one

would need to give credence to the idea of a second Scottish Independence Referendum, even though the

2014 plebiscite was supposed to be a ‘once in a lifetime’ event.

Of course it is possible that even the Scots elect to depart what by 2017 will be a very troubled EU. What

would Britain’s departure mean for its economy? Well, whilst I cannot say with certainty I will say with

confidence that I am not terribly distressed by the prospect. There is of course a form of taxonomy for Britain’s

EU departure; leaving with good-will as distinct from departing with ill-will, as well as leaving with an

isolationist agenda against a continuation of its openness. And it is the possibility that the UK on leaving the EU

is sanctioned by those who remain, or chooses unilaterally to isolate itself, which raises the greatest concerns.

Let me consider what might unfold in the event the UK was either rusticated or isolated by the EU, or even by

its own volition. In this event one wonders what happens to Ireland? After all Ireland’s better than anticipated

economic rebound has I would argue everything to do with the UK’s better than anticipated economic

recovery. For whilst charts 5 and 6 suggest that Ireland’s economy engages closely with the US, Belgium and

the Netherlands, much of this is the optical effect of tax inversion, whereas Britain’s engagement with Ireland

is very much real. The simple truth is that the economy of the Republic of Ireland has surprised positively

because of its Anglicisation and not because of its Euro-isation but despite it.



66

Chart 5: Top four Irish export partners, % Chart 6: Top four Irish import partners, %

Source: IMF, Toscafund

Ireland quite frankly has a connection with the UK like no other euro-zone nation indeed none other across the

EU. And it is this connection which would be broken, were the UK to be isolated. More broadly the UK runs a

consistent deficit in goods traded with the EU - in 2014 of £80bn – making it a valuable enough customer; one

which simply cannot be banned, certainly not without negative economic consequences across the EU.

Consider also any piqued reaction from Brussels involving restricting exports from Britain into the EU. Are we

really to believe that the management boards of BMW and VW will allow their extremely successful UK-based

operations to be sanctioned? As for any suggestion Mini, Rolls Royce and Bentley production could be

relocated to mainland Europe, this would be utterly absurd and can be dismissed entirely out of hand. Indeed,

talk of Britain being hollowed out by an exodus of businesses were it to EXIT the EU, is just hollow talk. After all

exit to where? A Continental Europe in the throes of economic, social and political challenges.

There is every chance too that by 2017 dissatisfaction with the EU would have spread widely across it. Indeed

we are already witnessing a growth in the number of those disaffected and disillusioned by the loss of national

power to those seen as geographically and emotionally distant.

I close then by cautioning against being over-cautious towards the possibility of change in Britain’s position

within Europe. For when I look at the world I do not see it as it appears topographically but how it is

economically, and map 1 is how I see Britain in a global economic and financial context.

Map 1: A UNITED Kingdom’s economic topography Map 2: England’s economic topography were it to EXIT

Source: Toscafund

As I have long argued we must not confuse geographic proximity with economic propinquity. And whilst

Britain may nestle alongside Europe in terms of its physical proximity, it might as well be over in Asia given its

economic propinquity with the likes of China et al. Just reflect on Britain seeking to become a founding

member of the Asian Infrastructure Investment Bank (AIIB), a move which no other “western nation” had the

foresight to do until Britain had done so. Indeed the United States has expressed objections to Britain’s

inaugural keenness towards the AIIB, no doubt because it sees it as a threat to the hegemony of the

Washington-based World Bank. Bear in mind too that China is now the largest single market for British-built

cars after the UK, with almost 140,000 UK-made cars exported to China in 2014, a seven-fold increase in five

years. Consider too the surge in Chinese students attending British, in particular English Universities and

paying very generously for the privilege. This alongside London being by far the preferred Western hub for

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012

%

United States United Kingdom Belgium Germany

0

5

10

15

20

25

30

35

40

45

2000 2002 2004 2006 2008 2010 2012

%

United Kingdom United States Germany Netherlands



67

Chinese – indeed Asian wide – financial and business service companies confirms how Britain is very much a

flourishing economy as much of Europe flounders. And whatever their ultimate ambitions happen to be,

Scotland and the Republic of Ireland need to realise that economically their interests are best served joining

England in engaging with a flourishing Asia (map 1). Their alternative is floundering with the rest of Europe

(map 2).



68

34. Conclusion – drawn from Issue 36 – For FX’s sake be prepared for wider currency

turbulence in 2016 – December 2015

Whilst the UK is placed alongside a Continent whose future I fear for, this should not be interpreted as a fear

for the UK. True, we cannot escape all that is unfolding across mainland Europe. However, much of what will

occur promises to ‘work’ in our favour if we are welcoming to it. We must welcome the ever cheaper imports

coming from mainland Europe, and we should welcome those who wish to escape to our shores bringing with

them a desire to work and bringing practical skills. For along with this human capital will come their financial

capital, and it will not confine itself to London. I have said as much many times before and far from my tune

changing I believe it all the more.

What then of Brexit? Well, if the EU doesn’t want to reform we should leave it. This said we must not abandon

it without at least leading from the front in demanding an overhaul. What of German obstinacy? Having let

Europe down before, Germany’s leaders are doing so again. This poor leadership has been seen from Germany

dictating poor economic strategy to a no less poor approach in other matters, for instance the “migrant crisis”.

Against this backdrop, an increasing number of those across the EU have awakened from the German spell.

Whilst some will turn inward, a great many will see the UK as providing a credible plan for their own recovery.

We owe it to ourselves to capitalise on this so that within a few decades we are Europe’s unrivalled economic

Powerhouse.

On the issue of “Powerhouses” if devolution within our own borders sends us travelling along contrasting

regional policy paths we should recognise that this is the very independence needed for a dynamic competitive

economy. We should welcome rival policies emerging in Scotland, Wales and within England. And this will be

the theme of a Discussion Paper which we have been working on for much of the time since May 8th

, when the

UK awoke to a new and unexpected political reality



69

Toscafund Discussion Papers

UK Private Rental Sector – Multi-Year Growth, July 2015

Prime Central London Residential Property, March 2015

The 2015 UK Election Outcome, January 2015

Growth of Britain’s Primary Cities, October 2013

Banking-on positive change in London’s property markets, 19 April 2013

Where in the world is this looming food price crisis? 1 March 2013

Britain’s Got Growth II: beating Germany on penalties, 17 January 2013

Seeing a quite different island in 20/20, 21 September 2012

Britain’s Got Growth, 31 May 2012

The building storm over Cyprus – Update, 18 May 2012

The Darkest of Greek Dramas: A Play for Survival, 16 May 2012

London 20/20 – Update, 30 March 2012

Update: Plotting North Korea’s path from regime-change to reunion, 20 December 2011

A Western Balkans crisis: A Europe wide problem, 2 November 2011

Plotting North Korea’s path from regime-change to reunion, 13 September 2011

Update: Scottish fiscal independence by 2015?, 13 June 2011

Cape Fear; South Africa’s chilling outlook, 18 March 2011

Scottish fiscal independence by 2015? 26 July 2010

Clouds darkening over Cyprus, 22 April 2010

Australia and Japan The best and worst of the G20, 26 March 2010

Who could possibly laugh through a Greek Tragedy? 8 February 2010

An employment outlook for London in 20/20, 13 January 2010

An A to Z journey into the economic future, 14 December 2009

An outlook for Canada & Mexico: Seismic Continental drift, 10 November 2009

Taking lessons in history, 5 August 2009

The REAL interest rate story, 20 July 2009

Toscafund Economic Papers

Issue 34 – An Encomium on Britain, mostly England

Issue 33 – Don’t get your Chinese order wrong – July 2015

Issue 32 – False Chinese Whispers – May 2015

Issue 31 – EXITSTENTIAL thinking, March 2015

Issue 30 – 2015, Thank you for reading, December 2014

Issue 29 – My grateful nation, October 2014

Issue 28 – UK housing issues and solutions, July 2014

Issue 27 – Scotland’s Special Issue, June 2014

Issue 26 – Just lots of boring words, May 2014

Issue 25 – Vive la difference, April 2014

Issue 24 – Europe in crisis again, as Britain stands out, March 2014

Issue 23 – It’s all just talk really, January 2014

Issue 22 – TOSCANOMICS confronts…, November 2013

Issue 21 – Darn…, August 2013

Issue 20 – On matters United, June 2013

Issue 19 – Oh, Historic times, February 2013

Issue 18 – Why we should welcome Britain’s export earnings softening, December 2012



70

Toscafund Asset Management LLP

Important Notice

This document is confidential. Accordingly, it should not be copied, distributed, published, referenced or reproduced, in whole or in part,

or disclosed by any recipient to any other person. By accepting this document, the recipient agrees that neither it nor its employees or

advisors shall use the information contained herein for any other purpose than evaluating the transaction. This document, and the

information contained herein, is not for viewing, release, distribution or publication in any jurisdiction where applicable laws prohibit its

release, distribution or publication.

This document is published by Toscafund Asset Management LLP (“Toscafund “), which is authorised and regulated by the Financial

Conduct Authority (“FCA”) and registered with the U.S. Securities and Exchange Commission as an Investment Adviser. It is intended for

Eligible Counterparties and Professional Clients only, it is not intended for Retail Clients.

The collective investment schemes managed by Toscafund (the “Funds”) are unregulated collective investment schemes, which pursuant

to sections 238 and 240 of the Financial Services and Markets Act 2000 may only be promoted to persons who are sufficiently experienced

and sophisticated to understand the risks involved and satisfy the criteria relating to investment professionals. Persons other than those

who would be regarded as investment professionals must not act upon the information in this document or acquire units/shares in the

schemes to which this document relates.

The information contained in this document is believed to be accurate at the time of publication but no warranty is given as to its accuracy

and the information, opinions or estimates are subject to change without notice. Views expressed are those of Toscafund only. The

information contained in this document was obtained from various sources, has not been independently verified by Toscafund or any

other person and does not constitute a recommendation from Toscafund or any other person to the recipient. In furnishing this

information Toscafund undertakes no obligation to provide the recipient with access to any additional information to update or correct

the information.

The information contained in this document does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any

securities or products in any jurisdiction in which such an offer or invitation is not authorised and/or would be contrary to local law or

regulation. Specifically, this statement applies to the United States of America (“USA”) (whether residents of the USA or partnerships or

corporations organised under the laws of the USA, state or territory), South Africa and France. Any offering is made only pursuant to the

relevant offering document and the relevant subscription application, all of which must be read in their entirety. No offer to purchase

securities will be made or accepted prior to receipt by the offeree of these documents and the completion of all appropriate

documentation.

Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable

taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant to the

subscription, purchase, holding, exchange, redemption or disposal of any investments in the Funds. In certain jurisdictions the circulation

and distribution of this document and the sale of interests in the Funds are restricted by law. The information provided herein is for

general guidance only, and it is the responsibility of any person proposing to purchase interests in any of the Funds to inform himself,

herself or itself of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Prospective investors must determine

that: (i) they have the authority to purchase interests; (ii) there are no legal restrictions on their purchase of interests; and (iii) the offer or

sale of interests is lawful in the jurisdiction applicable to them.

Funds managed by Toscafund have agreed to modify investment terms for certain investors for bona fide commercial reasons, subject to

applicable law and regulation. Lower performance fees were negotiated in the case of certain institutions and individuals who made

substantial investments or who agreed to specified lock-up periods. An investor was also provided with the right to the same preferential

treatment agreed with (if so agreed) subsequent similar or smaller investors. None of the investors with whom modifications have been

agreed have any legal or economic links with the funds managed by Toscafund and/or with Toscafund. To the extent there have been any

modifications, these have not resulted in an overall material disadvantage to other investors.

No liability is accepted by any person within Toscafund for any losses or damage arising from the use or reliance on the information

contained in this document including, without limitation, any loss or profit, or any other damage; direct or consequential. No person has

been authorised to give any information or to make any representation, warranty, statement or assurance not contained in the relevant

offering document and, if given or made, such other information, representation, warranty, statement or assurance may not be relied

upon. The content of this document may not be reproduced, redistributed, or copied in whole or in part for any purpose without

Toscafund’s prior express consent. This document is not an advertisement and is not intended for public use or distribution. The source of

all graphs and data is as stated, otherwise the source is Toscafund.

For Swiss prospective investors: The Fund has not been approved for distribution in or from Switzerland by the Swiss Financial Market

Supervisory Authority. As a result, the Fund’s shares/units may only be offered or distributed to qualified investors within the meaning of

Swiss law. The Representative of the Fund in Switzerland is Bastions Partners Office SA with registered office at Route de Chêne 61A, 1208

Geneva, Switzerland. The Paying Agent in Switzerland is Banque Heritage, with registered office at Route de Chêne 61, 1208 Geneva,

Switzerland. The place of performance and jurisdiction for Shares/Units of the Fund distributed in or from Switzerland are at the

registered office of the Representative.

Past performance is not an indicator of future performance and the value of investments and the income derived from those investments

can go down as well as up. Future returns are not guaranteed and a total loss of principal may occur. Please note that performance

information is not available for five years.

© 2016, Toscafund, All rights reserved.

Documents

16-02 - Toscafund Discussion Paper - BREXIT