29th November 2013
Andrew Silverman, board director and head of public affairs at Lansons considers the importance of the EU to UK investors and the prospect of a referendum on membership.
Britain resolved by a massive majority to remain in the EU back in 1975. In the years following that referendum both the UK and EU have changed beyond recognition.
The UK has moved from being an economy where the state controlled the rail, power, steel, postal and telecommunications industries, to one which is fundamentally privatised and liberalised.
The EU, on the other hand, has inexorably grown to encompass a market of 500 million people and states that were formerly part of the Soviet Union. Its bureaucratic functions have increased alongside the extension of membership with the EU Commission’s influence affecting most areas of commercial activity.
The question of Britain remaining in the UK is as a consequence of these developments fundamentally more important than it was in 1975. And that is why investors should take a cautious approach to the often emotive arguments surrounding our EU membership.
Uncertainty over Britain’s future in Europe grows daily and that this is not simply because David Cameron has pledged an “in or out” referendum, if the Conservatives win the 2015 General Election. It more so lies in there being an information “black hole” surrounding the benefits of our remaining in this trading block or seeking to join another, such as the European Free Trade Area (EFTA).
For investors seeking to reconfigure their portfolios in the aftermath of the financial crisis this degree of uncertainty is most damaging. It impacts negatively on the sentiments of businesses, banks and other major financial institutions and ultimately upon their advice to clients – whether investors or SMEs.
Politicians of all the major parties seem to fear debating the economic substance surrounding our EU membership and consequently publishing the facts that will enable investors to make informed choices.
Their preference is to debate the broad issues surrounding our membership such as legal or foreign policy competency. Neither of these or any of the other Lisbon treaty considerations get to the heart of what investors need and this is quite simply a balance sheet demonstrating the consequences of staying or leaving the EU.
Investors have the right to ask for this and need to get it, if they are to pledge funds into vehicles ranging from ISAs to long term bonds. Institutions would also gain much from this in making decisions over the degree to which they should proportion to the UK in their portfolios.
In the absence of a balance sheet being provided by the current Government or speedier referendum timetable investors can be sure about some key factors. First the election of a Conservative Government in 2015 would not guarantee a referendum; this is because legislation would need to be passed to permit it and this could not be guaranteed by any party. Second our remaining on current terms as an economic “second tier” player in the EU is not tenable for the long term, as our ability to influence the course of major economic policy decisions will increasingly diminish.
Given these factors the major political parties might consider adopting a bipartisan approach to our EU membership and resolving to hold a referendum before the 2015 General Election. This would force all involved to put their arguments to the table and lead to a conclusive decision as that made in the 1975 referendum.
This may provide the best possible boost to investor sentiment and certainty in the UK.