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Responding to incentives

Responding to incentives

UK can thrive outside EU

by John Mills in London

Sun 29 May 2016

Of course there will be transitional problems if the UK votes to leave the European Union on 23 June. But we need to look to the longer term – where will the balance lie then?

Following ‘Brexit’, the UK would no longer pay the EU £11bn a year net of all rebates. It would gain much better control over its borders. It would not be tied so closely to a part of the world growing much more slowly than the world average. And it would not become part of a continent-wide federation that almost no one in the UK wants.

These, in my view, are the upsides to leaving. But what of the downsides?

Many of the arguments on the advantages and disadvantages of the UK’s EU membership are disputed. Would Britain be safer in or out of the EU? Better at negotiating trade treaties? More secure militarily? More prosperous? It depends on the assumptions you make. If they are pessimistic, so are the outcomes, and vice versa.

Much of the referendum debate has been on the economic consequences of Brexit. If the UK departed, there would be a period of uncertainty. This could cause GDP to dip temporarily. If the economy turns down in the months following the vote, Brexit is likely to have been a minor influence compared with other factors such as adverse global economic trends and huge imbalances in the UK economy, not least a burgeoning trade deficit.

How well Britain does after voting to leave is more likely to depend in the short term on the policies the UK pursues in respect of maintaining open borders for trade, and on monetary, fiscal and exchange rate policies to help rebalance the economy.

Once the initial transitional period is over, there is no reason to believe the UK should not do at least as well economically, if not better, than if it had remained in the EU. A deal maintaining free trade in goods between the UK and the rest of Europe is extremely likely – preserving the conditions that apply to countries across the continent, whether they are EU members or not.

The situation in respect of services – already more restrictive than for goods because of non-tariff barriers – may be more complicated. But the City of London thrived after the UK opted not to join the euro despite what most of the establishment said at the time. The City has huge advantages compared with other financial centres in Europe and no doubt will adapt and prosper as it always has.

It is easy to talk down the UK’s economic resilience and resourcefulness. But people everywhere, including in the UK, respond to incentives. Provided we get those right, there is no reason to believe Britain cannot thrive outside the EU.

There are 168 countries in the world outside the EU and 28 inside. Many of those outside are doing much better than the EU average. There is no reason, if we join them, why we cannot do the same.

John Mills is Founder and Chairman of JML and Co-chairman of Business for Britain. This is No.72 in the series – the 100th article will appear on 23 June.

OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.

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