William Eichler 17 June 2016

What does Brexit mean for local government?

What does Brexit mean for local government? image

Assessing the potential impact of a Brexit - British exit from the European Union (EU) - on local government is a near-Herculean task. There are multiple competing voices vying for attention and countless unknown variables, so separating fact from fiction is difficult to say the least.

A lot of misleading figures have emerged during this debate. The Right Hon. Andrew Tyrie MP, chairman of the Treasury Select Committee, has said: ‘The arms race of ever more lurid claims and counter-claims made by both the leave and remain sides is not just confusing the public. It is impoverishing political debate.’

23 June is, however, fast approaching and so, with that in mind, the below offers some rough guidance on the relevant issues drawn from reasonably reliable sources.

Warning: this is far from an exhaustive overview of every topic; it is just an introduction. Follow the sources, check the facts and then make up your own mind in the polling booth.

Trade and the Economy:

The EU is the UK’s most important trading partner. In 2014, according to the House of Commons Library, it accounted for 45% of UK goods and services exports (£230bn) and 53% of UK imports (£289bn).

The Remain camp highlight this and add that membership of the EU gives British businesses access to 500 million potential consumers. They also argue that we would lose access to markets that have trade deals with the EU but not with the UK.

The Leave camp responds a Brexit would allow the UK to shed itself of the constraints placed on it by Brussels, freeing it up to be a strong, independent trading nation that can look beyond Europe to faster growing economies, such as India, China and Brazil. They also argue Whitehall would be able to stop paying money to Brussels.

In a recent study of the potential impact of a Brexit, the Institute for Fiscal Studies (IFS) acknowledged the Brexiteers’ economic arguments were correct in one sense: leaving the union would strengthen the public finances because the net contribution - which was £8.5bn in 2015 - would fall (but not necessarily to zero).

At the same time, however, they warned a Brexit would have a detrimental impact on the national income in both the short and the long term due to factors such as increased uncertainty, higher costs of trade and reduced foreign direct investment (FDI).

Using figures from the National Institute of Economic and Social Research (NIESR), the IFS said in the short run the effect would be to damage the public finances to the tune of somewhere between £20bn and £40bn (George Osborne thinks its £30bn), and in the long run lower GDP would likely mean lower cash levels of public spending.

An analysis by the professional services firm PwC, commissioned by the Confederation of British Industries (CBI) also concluded a Brexit would damage the UK economy. They argued it would have a potential cost to UK GDP of £100bn and 950,000 jobs by 2020 with negative echoes that could last many years after that.

There is, according to the IFS, an ‘overwhelming consensus’ among economists that a Brexit would have a negative impact on the national income - an assertion supported by a recent Ipsos Mori poll.

The one significant exception to the consensus is Economists for Brexit, a group of eight economists who argue: ‘The UK does not need to do a trade deal to trade. It already trades extensively with many countries across the globe under the rules of the WTO and can continue to do so with EU countries in the future (in the same way that the US, Japan and China does).’

They also argue the consensus has ‘misrepresented the post-Brexit potential outlook quite seriously to UK voters in this referendum.’

The CBI is with the Remain camp. ‘The EU Single Market,’ the director general John Cridland wrote, ‘is the biggest in the world, opening up a 500 million-strong consumer market to UK businesses, allowing capital and investment – as well as people and ideas – to flow into the UK and be deployed productively across the continent. This has directly boosted the living standards of UK citizens.’

Acknowledging the EU is far from perfect, John Cridland does stress that reform is required because of Brussel’s tendency to regulate on ‘trivial issues’ rather than focus on ‘big picture issues like growth, trade and the Single Market.’ But the CBI is still firmly pro the union.

The wider business community broadly shares the CBI’s position. The most recent EU survey, carried out by the British Chambers of Commerce, found a majority of businesspeople surveyed (54%) say they will vote for the UK to Remain in the European Union. It should be noted, however, that this figure was at 60% last February.

A Treasury Select Committee report, published last month, concurs with the thrust of what the above says. There will probably be, it says, a short-term economic cost to Brexit because exiting the EU could ‘weaken the pound, reduce domestic and foreign direct investment, and increase borrowing costs’.

The committee does, however, report that in the longer-term the economic consequence of a Brexit is more uncertain. They note that trade is ‘likely to fall’, an occurrence that would carry an economic cost, but they also point out (with the Leave camp) that a British exit could ‘create potentially beneficial opportunities: to improve the regulatory framework, and to strike new trade and better trade deals with countries outside the EU.’

It does provide a sobering warning to Brexiteers though: ‘reaching high-quality trade agreements with countries like China, India and the United States, while securing access to the agreements to which the UK is party by virtue of its EU membership, would be a considerable diplomatic challenge; it would take time, resources and the goodwill of other governments.’

Finally, the question of income. The Centre for Economic Performance (CEP), starting from the premise that leaving the EU would have a negative affect on UK GDP per capita, argues prices would go up in transport, alcohol, food, and clothing because these product groups rely a lot on imports. This means, they conclude, ‘the living standard of every income group would be lower after Brexit due to these higher prices.’ The TUC has also warned average weekly wages could be £38 lower by 2030 if Britain votes to leave.

This all largely depends on what arrangements are negotiated if the UK leaves the EU. But local authorities are already suffering the consequences of austerity and a weak economy and so, assuming the above is accurate, it is likely a Brexit would only contribute to their financial problems, at least in the short-term.

Immigration and Employment:

The full impact of a Brexit on the question of immigration and employment regulation is dependent on any future EU-UK relationship.

A recent report published by the Social Market Foundation (SMF) - Working Together? - looks at the potential impact of the EU referendum on UK employers. Currently, it notes, ‘citizens of member countries of the European Union, or the European Economic Area (EEA), have the right to live and work in other EU and EEA countries.’

It also points out, as a consequence of UK membership of the EU, ‘UK employers are also bound by a range of labour market rules and directives determining working practices.’ These include, according to an EU referendum report from the House of Commons Library, employment legislation dealing with such issues as annual leave, agency worker rights, collective redundancy, and protection of employment upon the transfer of a business.

The SMF sets out three potential ways a Brexit could affect employment regulations and the free movement of EEA citizens. Firstly, if the UK took the ‘Norway option’ and remained in the EEA, the UK would have ‘to meet EU-related employment regulations, as well as free movement’, so there would be no real change.

The second option involves the UK leaving the union and joining the European Free Trade Association. In this scenario, SMF concludes: ‘EU employment legislation would no-longer bind the UK government, although free movement of labour would still apply.’ In theory, this could lead to a bonfire of employment legislation. In practice, however, this would be dependent on political struggles after the referendum. (For more on Brexit and employment rights read this from The Conversation.)

The third, and most radical, option would be leaving and negotiating a bilateral trade agreement with the EU, similar to that negotiated by Canada. This would mean ‘the UK would be bound by neither EU employment legislation nor free movement of labour.’ What kind of regime would take its place? This would be, again, up for grabs; but SMF thinks a system where EEA migrants are selected according to specific criteria—earnings, qualifications, skills, occupations, for example - will be introduced.

This last option, according to SMF, would cause the most ‘radical disruption of the UK’s labour market’ out of the three possibilities. Currently, EEA workers make up 6% - 1.6 million - of all UK employees, and represent one in eight of London employees. If, in the event of a Brexit, they had to meet the visa requirements of non-EEA employees only 12% would be able to remain.

The group Open Europe concurs with SMF’s conclusion a Brexit could be detrimental to the labour market. ‘From a trade policy perspective,’ they write, ‘placing restrictions on the movement of labour is likely to be negative since restricting the potential labour supply would mean that the UK economy would react differently to future growth opportunities.’ It does, however, note the UK labour supply could be boosted by investing more in educating UK-born people and building up their skills.

There is also the question of non-EEA immigrants and those that may come to Britain should more countries join the union. Leave campaigners claim Albania, Macedonia, Montenegro, Serbia and Turkey will join the EU soon. It is the last country on the list that Brexiteers have chosen to focus on though.

Vote Leave have said: ‘Since the birthrate in Turkey is so high, we can expect to see an additional million people added to the UK population from Turkey alone within eight years. This will not only increase the strain on Britain’s public services, but it will also create a number of threats to UK security.’

Over the last five years, the collapse of Syria and Libya into civil wars, and the ensuing refugee crisis, has fed the fears and prejudices of many. Terrorist groups and far right European parties have been making hay in this environment and have done all they could to convince people the categories ‘Muslim’ and ‘European’ are irreconcilable. Vote Leave’s claims about Turkey appear to be following this trend.

Aside from the fact this is dog-whistle politics, the claim itself is untrue. According to a BBC reality check, the five countries are not going to join the EU any time soon and their admission to the EU will be subject to a veto by the UK and all the other 27 existing EU countries. Turkey applied to join in 1987 and then had to wait 10 years to be declared ‘eligible’ for accession talks, which finally started in October 2005. It seems unlikely they will join the EU (assuming they still want to) anytime soon.

Immigration and employment are two crucial subjects for local government. The supply of workers and the terms under which they are employed will naturally impact upon town halls, and so the results of the 23 June referendum will matter.

Democracy:

A major part of the case for Brexit revolves around the question of power and who wields it. As Cllr Lawrence Webb from UKIP puts it in our Brexit Questions: ‘This referendum is about one thing and one thing alone; who makes the laws that govern Britain. Currently most of our laws emanate from Brussels making the British Parliament irrelevant. Only when we leave the EU can we make laws that are in the British interest.’

The EU has one elected body, the European Parliament, which has 751 MEPs. It is directly-elected by the citizens of the 28 member states and has legislative, supervisory, and budgetary responsibilities. It passes laws with the Council of the EU, based on European Commission proposals.

The UK is subject to EU legislation, laws which British politicians play a role in formulating, parliament scrutinises and civil servants put into practice. The House of Commons Library, quoted by Tobias Lock, a lecturer in EU Law at the University of Edinburgh, says in the period from 1997 to 2009 6.8% of acts of parliament and 14.1% of statutory instruments had a role in implementing EU law. But, in reality, this tells us very little.

Clare Fox, writing in our sister magazine The MJ, has argued it’s irrelevant what proportion of UK law comes from Brussels. The real question is one of accountability. ‘Not only is the EU’s sole elected body – the European Parliament – an impotent, toothless vessel, the main decision-making bodies do not derive their authority from popular mandate but from inter-governmental ones.’

Ms Fox also pointed out the EU ignored the national electorates of France and Holland in 2005 and Ireland in 2008 when they voted against it in referenda. They also, she added imposed ‘technocratic governments’ on Italy and Greece because they felt ‘the electorates of those countries were assumed to be untrustworthy.’

The director of the Institute of Ideas, went on to express surprise that local authorities were not clamouring for a Brexit. ‘In the decade or so I have been writing for The MJ,’ she writes, ‘there has been incessant moaning about losing power due to top-down impositions from Westminster, hyperbolic pleas to throw off the shackles of dictatorship from a hyper-central government, a ‘cry freedom’ message associated with localism, devolution and regional autonomy.’

This is a strong argument. There certainly appears to be a democratic deficit within EU institutions. The main response is that in an age of globalisation the idea of national sovereignty is largely illusory. The forces that shape our politics and lives are no longer contained in one place - Westminster - and instead issue forth from multiple sources.

By leaving the EU, the UK would lose a lot of influence on the world stage and would find it difficult to address the multiple, transnational challenges facing it. Staying would give the UK the opportunity to join with others in pushing for democratisation.

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