Is there a genuinely independent go-to guide for anyone who cares about the future of the UK economy but isn’t sure how to cast their vote in the Brexit referendum? Two-thirds of voters are said by unreliable pollsters to have made up their minds already, which leaves at least a third undecided. As the strident rhetoric and tendentious factoids of the two campaigns intensify, the need for dispassionate analysis could not be greater.
So it seems a good time to take counsel from one of the City’s wisest greybeards. Rodney Leach — Lord Leach of Fairford — did as much as anyone, as a leader of Business for Sterling, to save us from the potential disaster of euro membership. Today, in addition to his day job as a director of Jardine Matheson, he’s the guiding light of the think tank Open Europe, which has been campaigning for effective reform in Brussels for the past decade.
Has David Cameron done enough to win a ‘yes’ vote, I ask him in his Lombard Street office overlooking the Bank of England and the former Royal Exchange. Well, that’s two questions in one, he replies: ‘Has Cameron done enough to deserve a “yes”?’ and ‘Has he done enough to get a “yes”?’ On the first, Leach says simply: ‘I wish that he had asked for a lot more.’ The package of reforms largely thrashed out ahead of the Council of Ministers meeting in mid-February— and announced by the Prime Minister on his return from Brussels (shortly after this interview took place) as a breakthrough deal — falls way short of the comprehensive reforms Open Europe had been pressing for. It says nothing about the CAP, fisheries or the ‘insane’ budgetary process. It is a pity, he says, that Cameron did not go after the budget system, which ‘almost everyone in Europe acknowledges is ridiculous’.
But will Cameron’s concessions be enough to win the day? Leach thinks it’s too close to call, with ‘remain’ marginally more likely. The status quo is still the ‘remain’ campaign’s strongest card. ‘In one of the Danish referendums, the questions asked was: “Do you know enough to say yes to the euro?” That was extremely effective [in producing a ‘no’ vote]. People there felt, “No, I don’t know enough to do it.” With Brexit, the question “Do you know enough to want to stay in?” is an easier one to answer than “Do you know enough to want to leave?” In other words, the devil you know.’
What are the realities of the economic arguments for and against remaining? Armed with Open Europe’s research on the likely impact, Leach is scathing about ‘adversarial claptrap’ from both sides. The Brexit camp ‘claims that the gains from getting out are much greater than we think they really are. But the same is true of the other side: those who want to stay claim that the losses [from leaving] are whole magnitudes larger than we think they are.’
Is this a lack of understanding or wilful misrepresentation? ‘Probably a bit of both. The economics on the ‘remain’ side that I’ve seen is very low-quality…this nonsense about three million jobs at stake, which is just completely wrong. And all this talk about exclusions from markets. We’re not excluded from the Brazilian market. The Chinese and Americans are not excluded from Europe. It’s just nonsense.’
Open Europe’s assessment, published in January, is that the GDP impact will be around plus or minus 1 per cent, depending mainly on the UK’s policy response. ‘The benefits and disbenefits are fairly marginal on both sides. There is an obvious disbenefit from the sheer cumbersomeness of leaving… so much of European law is passed into English and Scottish law. I think most of the arrangements between companies, the whole interlinking of supply chains, would, to a very large extent survive, but I suppose that if you had some years of difficult negotiations, companies who felt competitive with British suppliers in Europe would try to take advantage of that, and no doubt they’d have some success. Equally, as Ukip says, as we buy more traded goods from Europe than they buy from us, we’d have very strong cards to play on the other side. So I think we could end up with very little change.’ But don’t forget, Leach goes on, that Europe would ‘suffer more than us if we left’. Why? ‘Because Europe would lose a sixth of its contributions to the budget, which would have to be made up elsewhere. It would also lose its financial market. More people commute into the City every day than live in the so-called competitors like Frankfurt.’
‘Europe would also clearly lose its main window on the Anglo-Saxon world. It would lose half its military force at a time when Putin’s at one door, Isis at another… above all, I think Europe would lose its self-confidence. Since I became interested in Europe its share of world GDP has fallen from 30 per cent to about 20 per cent. With Britain going and with the stagnation that’s still apparent in much of Europe… you can see Europe coming down to 15 per cent of world trade. At which stage, with no army, no foreign policy, no great central soft-power like all the City’s services, Europe becomes just a largish commercial grouping. They simply couldn’t pretend to treat on equal terms with Washington or Beijing. So, yes, I think Europe stands to lose a very great deal.’
Does Leach have a view about what kind of deal outside the EU would best suit the UK? Not Norway’s, he says: all the rules, but no votes. The Swiss model, with multiple bilateral agreements, isn’t perfect either. Canada’s free-trade agreement with the EU looks better, but has still to be ratified after years of negotiation. And it wouldn’t deal with the UK’s greatest trade objective, which has to be a free-trade agreement with the EU in financial services.
If the UK does vote to remain, I say, how realistic is it to expect Europe to reform itself? ‘It’s very clear that the mood for reform is much stronger than it was. But it’s not clear that it has overcome the intrinsic inertia of the huge EU machine. We’ve got to get 28 countries to agree. What you see is that there’s only one major country which is really in favour of reform, and that’s Britain, with help from Scandinavia and the Netherlands and sometimes from others, depending on which government is in power.’
This brings us to the thorny point that the Brexit debate, which ideally would be centred on the issues of free trade and sovereignty, has instead become mired in a parallel issue, immigration. ‘Not surprisingly, the public does not find it easy to unscramble the difference between legal migrants under the EU treaties — which Cameron has got his special deal on — and illegal immigrants and refugees. The idea sometimes canvassed by the wilder elements; that people who have misbehaved in Cologne immediately get some form of European citizenship, then pass into Britain and violate the good women of Birmingham and Swindon, is very wide of the mark.’
What about the constitutional issues, on which Leach has also been keenly involved? Would it make sense to seek a veto on EU laws, as Boris wants? Leach surprises me by saying he’s not sure how strong a point this is. When he goes to visit schools he asks the kids to think about the difference between a province and a country. The former can’t make war, have their own currency or control a budget. Yet the UK has all of those and ‘even on borders, except what we have actually agreed to do by treaty, we have complete control of our own borders… so I don’t think the constitutional infringements are all that great.’
In an ideal world, he says, the referendum would be held in five or six years’ time, when a new treaty will be needed to validate what the European project, and in particular the eurozone, will by then have become. ‘We of course have a veto on that treaty.’ That would provide the UK and others outside the single currency with maximum leverage to secure lasting reform. ‘So far as anything is complete in this wicked world, that would complete a process begun in the current referendum. That’s my vision of Europe. I hope I’m still around to see it.’
Jonathan Davis is the founder of Independent Investor and a columnist for the Financial Times.