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Uncertainties of staying

Although some of those who want the UK to remain a member of the EU suggest that the referendum is a choice between the comforting security of the status quo and a dangerous leap into the unknown, it is clear that there are uncertainties whichever way the referendum goes. One of the best think tanks, Open Europe, made ’There is no such thing as the status quo’ something of a slogan. This and the final chapter attempt to provide a checklist of post-referendum uncertainties, whichever way it turns out on both sides.


 

1. Little influence in the EU in the short term

At this particular moment, on the brink of the possible departure of the UK from the EU, and the termination of its substantial financial contribution, the UK’s influence within the EU is at its high point, and over the last few months its negotiating hand has been as strong as it has ever has been, or is ever likely to be.

If it votes to stay in, it seems likely that its negotiating hand will be weaker for some considerable time, either because the majority vote of the British people will be taken as a reassuring mandate for EU policies that British governments have been resisting for some while, or because other members will have grown a little weary of listening to and trying to accommodate the concerns of this especially troublesome member, that claims ‘a special status’ and will expect it to be quiet, for a little while at least, since it has nowhere else to go.

No-one knows of course what promises or quid pro quos the Prime Minister may have made to secure the concessions he did announce, modest as they have been found to be. We will only learn about them, after the referendum, if that is, the vote is to remain.

2. Free trade agreements

The European Commission’s abysmal record in negotiating agreements to the benefit of British exporters has been documented in the notes. However, the case for remaining in the EU does not appear to depend much on the EU’s record, but entirely on the promise of TTIP, even though no one knows its terms, or can say when it will be finally concluded, or if it will finally be ratified by both parties. TTIP has already provided an illustration since a French veto on these negotiations was only lifted after the exclusion of audio-visual and media services, a sector which might have been of considerable benefit to the UK. That, however, was part of the price of solidarity. We will have to wait and see if there have been any more.

In his report to the House of Commons Mr Cameron also announced that ‘We have secured commitments to complete trade and investment agreements with the fastest growing and most dynamic economies around the world, including the USA, Japan and China, as well as our Commonwealth allies, India, New Zealand and Australia.’ After 42 years, of being sidelined in EU trade negotiations, and despite Britain’s alleged considerable influence within the EU, the Commonwealth is suddenly produced like a rabbit from the Prime Minister’s hat. What this commitment might be worth remains to be seen.

3. Immigration from other member states will continue at an unpredictable rate

Even if all the measures Mr Cameron renegotiated, and which he hoped would reduce immigration from EU countries, (such as the temporary limitations on the welfare benefits new EU immigrants can claim, as well as the measures against criminals from EU countries, and sham marriages by EU nationals) all worked well, immigration from EU will still continue at an unpredictable level. His renegotiation made it abundantly clear that the UK cannot be exempt from one of the cardinal principles of the Union.

Immigration from member states with significantly lower incomes and social services than the UK will continue, placing extra unpredictable pressure on UK housing, schools and medical services into the indefinite future. One major uncertainty therefore is whether that level will prove to be acceptable or unacceptable to the British people.

4. Increased regulation of financial services seems certain

The Bank of England has expressed its fears about the risks of future financial integration of the eurozone and of misguided ‘maximum harmonisation’ in EU regulation. The Prime Minister claims to have negotiated protection for the City of London, but apart from mentioning that it will not be forced to relocate to conduct euro-denominated trades, gave no specifics to the House of Commons.

He also claimed that ‘we have guaranteed British business will never face any discrimination for being outside the eurozone’ but it is difficult to see how there could be any guarantees for protection against as yet unknown measures that the new EU regulatory authorities (European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority), may decide on, or steps the eurozone may take to safeguard its own financial stability which incidentally adversely impact the City of London.

The greater part of EU financial law is based on the treaties’ Single Market articles, and therefore decided by QMV, so the UK cannot veto them. The eurozone also has an inbuilt majority in both the Commission and Parliament, and all seem set to continue on a path of more stringent regulation without any particular regard for the interests of the City of London.[1] The European Court of Justice offers no protection since it is committed to further EU integration. The UK has lost three of four cases it has brought to the Court, and won the fourth, on the the location on euro-denominated trading, on a technicality, not on the principle itself, so it might well be resurrected.[2]

In 2012 George Osborne secured a so-called double majority lock in the European Banking Authority so that measures had to pass a majority of both eurozone and non-eurozone members. At the time there were 18 eurozone members and 10 non-members. Now there are 19 eurozone members and five of the present nine non-members have indicated they will join the euro before or by 2020. It is implausible to expect 24 eurozone members to allow four non-members to veto their decisions.[3] The UK is the only country that is permanently committed to retaining its own currency, so it had best be prepared to be a minority of one. Whether Mr Cameron’s words to the House of Commons will then be of much help is unclear. But by that time he will probably have retired.

5. Financial Transaction Tax, and other new or ‘harmonized’ taxes are on the cards

For a very long time, the EU has sought to impose a tax or taxes across all member countries that would substantially increase its own resources, so that it would have an income of its own in addition to that from tariffs and a proportion of VAT, and render it less dependent on the outcome of discussions in the European Council every seven years, preceding agreement on the multi annual financial framework. It is an aspiration that, if it succeeds would render it even less dependent on member governments and of the peoples it hopes to govern.

The near certain prospect in the not too distant future is a Financial Transaction Tax. Although this has been accepted by eleven eurozone members. It was opposed, unsuccessfully, in the European Court of Justice by the UK, on the grounds that it would adversely affect non-participating member countries. One study had claimed that it would add £4b to the annual costs of issuing UK debt.[4] After a positive referendum result in the UK, the chances are that it will be re-launched and receive enthusiastic support from the European Parliament and public opinion in member countries, including the UK.[5] It is, after all, a tax on other people, and such taxes are usually acceptable.

There are other possibilities. Given the EU’s permanent interest in new sources of revenue, it will no doubt support proposals like that of German Finance Minister Wolfgang Schäuble’s proposal for a petrol tax to cover the costs of the refugee crisis, which might gain traction, and even popular support if the fall in pump prices continues.[6]

More importantly, over the longer run the proposed common consolidated corporate tax base (CCCTB) will be the preliminary to tax harmonization. In itself the CCCTB is intended to enable cross-border companies to make just one calculation of their taxable profits in the EU, and thereby tackle base erosion and tax shifting to low tax jurisdictions. Almost all member states support the idea, other than its two offshore financial centres, Luxembourg and Ireland, since it will ensure greater tax transparency and illuminate opaque and preferential tax regimes. Once established, it will be a platform for the policy which both the European commission and German government have long supported of reducing tax competition and ‘competitive distortions in the Single Market’, and finally dealing with low corporation tax rates that have attracted FDI to Ireland in particular but also to the UK.[7] In the last budget negotiations, the UK had to resist pressure for new EU-wide taxes as a new ‘own resource’ for the Commission.

6. The rebate will come under renewed attack

The reduction or elimination of the UK rebate has long been an objective of a number of member countries that contribute to it. Mr Blair proved unable to resist this pressure during the UK presidency, a concession for which he obtained nothing. By 2014, his concession had cost the UK taxpayers some £10bn.

The likelihood is, especially after a vote to remain a member, it will almost inevitably, come under renewed attack. Unless the UK continually finds especially resolute leaders, and as long as it has no other goal for which it is willing to make a concession, then it is difficult to see it maintaining its present level. In all probability, it will be asked, and perhaps already has been asked, for a reduction in the rebate in return for the UK’s ‘special status’. How would a victorious, and soon to retire, Mr Cameron be able to refuse?

7. Subsidiarity: will it happen? 

In his report on his renegotiations to the House of Commons, on 22 February the Prime Minister said:

We have a new mechanism finally to enforce the principle that, as far as possible, powers should sit here in Westminster, not in Brussels, so now, every year, the European Union must go through the powers that it exercises and work out which are no longer needed and should be returned to nation states.

There are no recorded cases of the fundamental principle of subsidiarity even being used to return powers to national governments. Presumably the Prime Minister meant that the Commission, rather than European Union, ‘must go through the powers that it exercises’ etc, but he said nothing about how this ‘mechanism’ would work. We will therefore have to wait and see how this annual review is conducted.

8. A long-term decline of UK Influence within the EU seems likely

A great many of the most fervent advocates of membership Messrs Major, Blair, Brown, Heseltine, Clarke and Mandelson take the view that the UK should stay and fight in the EU and make allies, win hearts and minds, and fight for the reforms that they want to see. Gordon Brown like Blair before him even thinks that the UK should ‘lead in Europe – with progressive British values to the fore.’[8]

Unfortunately, their own careers negotiating with or working in the EU do not offer a single example of how this might best be done, that is to say, of reforms which they proposed, fought for in EU meetings, found allies for, and finally brought to fruition. If there are any such cases, it is odd that they themselves have never brought them to our attention, either in their speeches or in their memoirs, and that no one else can identify them either.[9]

Over the long term one must expect a continuous decline in its influence within the Union bearing in mind that the UK is not a member either of the euro or of the Schengen area and has therefore been unwilling to participating in the rescues following the crises that both of these ill-considered projects have precipitated: bailouts of eurozone countries and EU quotas for the redistribution of refugees and immigrants. The Prime Minister is proud of these achievements which cannot endear him or the UK to other members. The UK has now emphatically stated that it does not wish to participate in the drive to ever closer union, and expects its reservation on this score, not only to be taken for granted but formally acknowledged by other members in the next Treaty.

Since these three things are among the primary defining characteristics of the European Union, it seems unlikely that the UK could in the future exercise much influence on policy making within it. Moreover, in all probability, there are more UK opt outs to come. UK participation in EU military endeavours has been perfunctory to say the least, and it has frequently made known its resistance to the idea that the European Defence Agency should evolve into the EU Ministry of Defence, though for founder members it would be the capstone of the project on which they have been engaged since the Treaty of Rome in 1957.

One must also recall that the largest party group among the representatives the British people elect to the European Parliament are committed to leaving the Union and have little respect for its leaders and its institutions. That may, of course, change in the future, but for the moment, this combination of many opt outs, and a large number of MEPs hostile to the whole project makes it unlikely that other members would want a Brit to ever again hold one of the significant offices of the Union, president of the Commission, of the Central Bank, of the Eurogroup, or of the Parliament, it is therefore unclear how this influence might be exercised, and to what end.

However, Messrs Major, Blair, Brown, Heseltine and Mandelson are, however, accomplished political operators so they may perhaps explain how this might be done, and why other members would be inclined to heed the influence, let accept that leadership, of a member that is clearly at odds with the goals of other members.

9. A question about the legitimacy of the EU authority

The EU flies in the face of the primary principle of political legitimacy in the modern world which is that those who make laws and give orders should be co-cultural with those who they expect to obey them. This is a principle that underpins every democratic polity and every non-democratic polity in the modern, post-imperial world. Indeed, it is precisely because it is universal that it remains all but invisible.

The EU alone stands firmly against this principle, in the belief that there are European values enunciated in its charters and treaties that transcend the cultures of member nations. Whether cultures can be transcended easily, is not so certain. These superior European values are enunciated by elites, usually on special occasions, when they all speak the same language. Culture, by contrast, is embodied in the daily habits, interactions and vernacular of the people, and not just in their quaint popular customs and folklore. It informs the whole apparatus of government, lawmakers, judges, policemen, civil servants, every professional, business and family relationship. No one can quite ignore its preferences and demands.

As the scope of EU laws extends, and enters people’s lives more directly, one might expect its legitimacy to become increasingly uncertain, since these laws are voted by a Parliament which can and does easily outvote entire national delegations of MEPs, even if they happened to be unanimous, and its executive and judicial branches are led by unknown foreigners, who speak another language. Thus far, the authority of this emerging state has not been questioned because the peoples of the EU have been protected from direct contact with its alien authority by national elites who have accepted it, and who re-enact its legislation, and use national institutions to impose its will on their own people. The EU itself is never questioned or threatened because it has willing agents or proxies in the elites of member countries. It is not certain that this can continue indefinitely, and provide a foundation for a permanent form of government.

Notes

[1] The 13 major items on the EU reform agenda since 2013 ar described pp.328-330, Business for Britain, Change or Go, London 2015. businessforbritain.org/2015/07/17/change-or-go-published-in-full/

[2] Europe Economics, EU Financial Regulation, 2014, p. 40. forbritain.org/EUFinancialReg.pdf

[3] p.333, ibid.

Andrew Trotman, ‘EU’s Financial Transaction Tax would hit City, says study’. The Daily Telegraph. 3 April 2013.

[5] ‘Final decision on financial transaction tax expected in June’ The Guardian, 8 Dec 2015

http://www.theguardian.com/business/2015/dec/08/decision-financial-transactions-tax-june-eu

[6] Sueddeutshe Zeitung 16 Jan 2016.

[7] Article 188c of the Lisbon Treaty already provides legal grounds for such intervention. It reads ‘The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action.’ For the moment, however, action under Article 188c appears to require unanimity. ‘France and Germany want to see common basic corporation tax rates across the EU’, according to a report by Matthew Holehouse, and Christopher Williams, in the Daily Telegraph, 26 May 2015

[8] Gordon Brown, The truly patriotic British view on Europe? We must lead from within, The Guardian, 9th March 2015.

[9] Clarke seems to have the best claim to a memorable achievement of a sort. According to the current President of the Commission he is ‘the man who saved the euro’.


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