Labour wants EU reform, but no referendum. The Conservatives promise a referendum following reform by 2017. The Lib Dems would only hold a referendum in extreme circumstances. UKIP would like to exit the EU as quickly as possible.
The intention behind the EU was to encourage trade by creating a single market with a common external tariff. Standardised laws have reduced barriers to trade across member states, as has the free movement of labour, goods, services and capital. 80% of UK businesses trade with EU members, accounting for 60% of our exports. So why do some see it as the source of such woe?
All parties agree something has to change. Many cite unnecessary regulation. Some feel open borders put British people out of work, and strain on the benefits system. Uneven implementation of EU law across states might give some an unfair advantage. Many believe structural reform would increase competitiveness. Some resent losing ever more domestic power to Brussels.
The Lib Dems have warned that leaving the EU would undermine Britain's national interests, and have backed up their view using a report from TheCityUK, which concluded that “exiting the EU would undermine Britain's economic well-being and the ability of business to grow and compete in world markets.”
The report found that the foremost benefits of EU membership were low-cost access to a large proximate market and influence on EU legislation affecting the global market. It also noted that if Britain were to leave, the EU's positive pressure on UK innovation and productivity would lessen.
However, those wanting out say there’s no reason for the EU to penalise the UK for leaving and, in any case, the World Trade Organisation forbids discriminatory trade practices, so access to the EU market would not be reduced. But, even if it were not reduced by discriminatory practice, the fact that Britain could no longer enjoy such fluidity of business with EU countries would surely have its own impact?
The Telegraph’s Christopher Brooker says there would be no loss of influence. If the UK were to exit the EU it would have the option to join the European Free Trade Association (EFTA), the free trade organisation made up of Iceland, Lichtenstein, Switzerland and Norway; all European countries in geographic terms but not EU members. EFTA members are consulted on EU legislation, and can become members of global bodies themselves, rather than being represented by the EU. However, EFTA members have to comply with EU regulation to access the single market, and the WTO rule doesn’t cover the export of services, the UK’s biggest sector.
The big economic picture is complicated, but what about the day-to-day for SME’s?
As small business accountants, we are most wary of the immediate hike in the cost of business with EU companies, even if we negotiate a tariff-free agreement. Businesses trading across EU borders charge each other VAT 0% to ease complicated accounting issues with different VAT rates, but when dealing with non-members, both sides must charge. As we buy more than we sell from the EU, many businesses would fall foul of this new tax position.
A CBI/YouGov Survey showed 78% of businesses believed Britain should stay, but a referendum wouldn’t be decided by businesses. Speaking to the FT, Dhaval Joshi, chief strategist at BCA Research, expressed concerns that significant economic damage would be caused by the mere prospect of a referendum. For the small business owner, the election could be considered an EU membership referendum, and minds need to be made up very quickly.
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