Saturday, 26 November 2016

Brexit - Why Might We Need A Second Referendum?

Calls for a second EU referendum have got louder over the last few days.  So why might the UK need a second referendum?

It's worth stating two principles at the outset about what is a momentous decision to leave the EU:
  1. The UK should leave the EU if it is in the national interest to do so
  2. A referendum is the right way to decide, separate from party politics
The problem is the first referendum in June 2016 was unsatisfactory for a number of reasons, as set out below.  A second referendum would help to address these matters, and either:
  1.  Confirm a Leave decision, in which case Remainers should accept it and rally behind it in a way they cannot do today
  2. Reverse the decision, so the UK remains. The UK would then avoid what people then regard as Leaving being the wrong decision
Some suggest the cost of a second referendum of around £100 million would be a waste of money, especially if Leave were to win again. But this is compared to the OBR's estimate of a cost of £15 billion a year to public finances for years after leaving the EU. So £0.1 billion is a very good use of money should Remain win.  It is also worth it if  Leave win again, to galvanise the necessary support to make the best of Brexit and reduce that annual cost.

Some eminent politicians and commentators have suggested a second referendum would be an attack on democracy.   Quite the opposite.  The people would still be asked, and the Act setting up the second referendum should clearly state the decision would be accepted (which was not the case first time around).  If there's a win again for Leave, Parliament would pour over the details, but only in support of that decision.  That is entirely democratic.


The matters which make the first referendum unsatisfactory include:
  1. Since the June vote, a lot of information is becoming available.  The Government and the EU are taking the prospect of the UK leaving the EU seriously. That includes whether Brexit should be "hard" or "soft", our EU partners' attitudes (which were not public before the June vote), the practicalities of exit, the likely cost of the transition, and much more.
  2. In that context, the June vote was a vote "in principle".  A second would be more "in practice".
  3. There were too many lies from both the Leave and Remain camps.  It would be hoped that second time around there would be better control of facts. 
  4. In particular, the British public were effectively promised an extra £350m a week for the NHS on the side of a bus.  Whilst the likes of Nick Robinson proved this as woefully overstated, the bus was not withdrawn and conversations I subsequently overheard proved the correction had not been conveyed.  Now the OBR's best estimate is there will be £288m a week (£15bn a year) LESS, not more, once Brexit occurs in 2 years' time.
  5. Since June there has been a 10-15% devaluation of the pound against the US Dollar and the Euro. For businesses, exporters will potentially gain, whilst importers will lose. But for people PERSONALLY, the impact is all negative with an increase in costs of food, electronics and much else, as well as the cost of foreign holidays. Whilst some suggest the pound was over-valued anyway, it was Brexit that triggered the fall. 
  6. The result was a marginal 52%:48% decision, but with key areas such as Scotland, NI and London voting to Remain. That is not a "clear" result as the Prime Minister and others claim.  Indeed her constituency of Maidenhead, and those of brexiteers such as Redwood's in Wokingham and Goldsmith's in Richmond all voted clearly to Remain
  7. In summary, a second referendum would allow voters to vote on what Brexit really means, with the latest information.
Furthermore, there are strong indications that many voters did not take the first vote seriously enough.  They should be given a second chance given the enormity of the decision, whether that produces a Leave or Remain vote.

The polls before the referendum suggested Remain would win.  I'm not convinced voters took the prospect of Leave winning seriously enough:
  • In the days after the June vote, it was some time before I met a Leave voter who actually really voted to Leave, or clearly understood the implications.  For example a TV cameraman was going to vote Remain, but at the last moment voted Leave to "give Juncker a kicking".  A cabbie and four of his family had effectively tossed a coin.  A business man "liked Farage".  A London cabbie hadn't realised banks would likely scale down their operations in the City, which would mean less business for him. 
  • In Labour heartlands, it sounds like many Leave votes were about improving their standard of living, as a general anti-establishment vote.  Many of these areas benefit more from EU support than other areas, and a Leave vote was therefore counter-productive.  Did they really understand that?  Was leaving the EU what they really wanted?  Or just an improvement to living?
  • The proportion of youngsters voting was significantly lower than retired folk.  Youngsters are more likely to be away from home, working or at university.  In any case youngsters should be given a second chance to get out and vote, and be more prepared to ensure they have arranged a postal or proxy vote if necessary. 


The decision for the UK to leave the EU is momentous, and not to be taken on a single referendum that had so many issues.  A second referendum vote is necessary to ensure voters can take into account subsequent developments, and take the vote more seriously than they appeared to do first time around:  The first vote was "in principle" and the second would be "in practice".

The second vote would either:
  1. Confirm a Leave decision, in which case Remainers should accept it and rally behind it in a way they cannot do today.  This help to reduce the estimated £15 billion a year cost to the public finances of leaving, as well avoiding the lost jobs and wider economic impacts that figure implies.
  2. Reverse the decision, so that the UK Remains.
The likely cost of £100 million (£0.1 billion) is nothing compared to either of those outcomes.

How and when a second referendum would be held is another matter.  But in principle a second referendum should be held.  The right way to do so is the next question.  That's a separate discussion.

Thursday, 24 November 2016

Brexit - What Economic Return on the Investment?

So now we have it.  The OBR's independent forecast for the UK economy for the next 5 years has been published.  So is Brexit good or bad for the economy?  What's the economic return for any short-term investment?

The OBR (Office of Budget Responsibility), which is independent of the Government but has access to ministers and other civil servants, has concluded:
  1. Growth will be lower under Brexit than it would have been
  2. This translates into the UK having to borrow an extra £15 billion a year from 2018/19. That totals nearly £59 billion over the next 5 years, with potentially more to come
  3. There is is no discernible upturn arising from Brexit within 5 years

To put that in context:
  • £15 billion is some £288 million a week more to borrow, not £350m per week more to spend
  • £59 billion is some £3,400 for each of the 17 million people who voted to leave the EU
So in the next 5 years the OBR is saying that Brexit will be bad for the economy, when borrowings are in any case rising too fast.

"Brexit means Brexit".  Economically it means:
  • Bad for jobs
  • A tighter squeeze on public services
  • And/or higher borrowings to pass onto future generations


The OBR acknowledges that the uncertainty in forecasts is greater than normal.  The adverse amounts could be lower or indeed higher.

It would appear that the OBR has had little more information from the Government than the general public.  "Brexit means Brexit", with of course little knowledge of what the EU will agree for its future relationship with the UK, other than what has been stated publicly.

The OBR has effectively had to pull figures out the hat.  But what they are saying is that the figures they had to choose from reflect that:
  • On balance the OBR believes the negative effects of Brexit will significantly outweigh any positive effects for each of the next 5 years
  • In particular, there is nothing to indicate that the economy will be getting any better as a result of Brexit until sometime after those 5 years, if at all
This is entirely consistent with other forecasters, and reflects:
  • The uncertainty that is likely to result in deferred or cancelled investment by the private sector
  • The devaluation of sterling that has already occurred
  • The years it will take to put any new trade deals in place
We also have to recognise that their forecast may be optimistic, and the actual outcome could be far worse.


The Leave campaign boils down to three potential advantages of leaving the EU:
  1. Freedom to negotiate the UK's own trade deals with USA, China and others.
  2. Control over immigration and the UK's borders
  3. Being able to set our own laws, without the interference of the European Commission or being beholden to the ECJ (European Court of Justice)
As noted above, the problem is that trade deals take many years to negotiate.  In the case of a replacement deal with the EU:
  • The two years after Article 50 notification is to negotiate the terms of the "divorce" not the "re-marriage".  A new trade deal could take years longer.
  • It is unreasonable to expect the EU to agree to a deal which is as good or better than the terms of EU membership.  That would only result in other countries following suit, and the EU disintegrating. The message from the EU is that can't be allowed to happen.  That is also the view of senior representatives of Germany's car industry that sells massively into the UK. 
  • That principle would apply to any interim trade deal.  That is now looking likely to be put in place in the first two years as part of the Article 50 negotiations.
Immigration pros and cons is too big a subject to cover here. But the OBR specifically expects lower immigration and a significant economic hit as a result - some £6 billion in the fifth year:


In economic terms, within five years there is no return on the investment. The jury's out as to:
  • Whether the sunlit uplands of Post-Brexit Britain will ever be better than staying in the EU?
  • If so, how far away will the economy turn for the better?
One has to wonder whether the cost of Brexit could ever be worth the investment.


The OBR, supported by other forecasters, suggests that negative factors resulting from Brexit will significantly outweigh positive factors for at least 5 years, perhaps much longer.

The best estimate, which could be lower or higher, is:

  • Some £288 million a week more to borrow each year from 2018/19, not £350m per week more to spend as had been suggested by the Leave campaign prior to the referendum
  • An investment of some £3,400 over the next 5 years for each of the 17 million people who voted to leave the EU. That's with no indication of any economic upturn, so that figure could increase in further years. Nor is there any clear indication of any return on that investment.
 That means:
  • Brexit is bad for jobs
  • A tighter squeeze on public services
  • And/or higher borrowings to pass onto future generations
So Brexit is clearly bad for the economy.  Whether it is also bad for the UK's "National Interest" is a matter for debate.  But for many people personally affected by lost income or poorer services, that is what matters.

Arguably the economic impact should be put above any other factors put forward in favour of Brexit.  In that respect, the debate goes on.