If we did leave the European Union what would it mean for your finances? – 15286

8th February 2013

Membership of the European Union continues to divide political parties and the public at large. Yet while there has been much discussion about the threat to the economy of the UK leaving the EU, what are the implications for your personal finances?

At present there are two fears frequently voiced by business leaders and Europhiles on the impact for the economy. One is that leaving the EU would damage growth by weakening our access to the European single market, and another is that going solo would see the UK end up adrift, risking its standing on political and economic matters.

Alternatively, others argue the EU is a drain on the UK, and we’d be better off out – simple as that.

Yet while the debate rages on, there is little agreement on the wider ramifications, such as how leaving the EU would impact your pocket. Mindful Money asked a range of experts for their opinion.

Job opportunities

It could severely damage employment opportunities, say experts. At present, UK membership entices company capital investment within the UK, creating jobs and wealth for small and large businesses.

Minesh Patel, chartered financial planner for London-based EA Financial Solutions, says: “Leaving the Eurozone will have a very negative impact on our economy with at least 40 per cent of our exports going to Europe, so this would have a damaging impact on unemployment.

“This inevitably will have a detrimental impact on the personal finances of already struggling households.” The UK jobs market has shown some resilience in the fact of a weakening economy, with the unemployment rate dropping to 7.7 per cent from 7.8 per cent in the three months to November last year – but this could change if the UK left the EU.

However, not all believe it would put a strain on all aspects of business opportunity. Adrian Lowcock, senior investment adviser at Hargreaves Lansdown, says: “There are a lot of potential positives to leaving the EU.”

He stresses that doing so would remove huge swathes of red tape which cost businesses billions. “Reducing red tape would not only help businesses in the UK – it would also make the UK a more attractive place for foreign companies to operate their businesses, and create job opportunity.”

The tax you pay

The UK government could take back greater control on taxes, some say, and make the UK a more competitive place to operate, but how would this affect the tax you pay?

According to Richard Mannion, national tax director at Smith & Williamson, the main tax implication would be on VAT, as this is a European tax and effectively governed by the European Court. “If we came out of the EU it seems sensible to assume that the UK Government would keep VAT, but it could then do what it wanted to without fear of interference,” he says.

However, he adds: “The practical implications on trade of the UK leaving the EU could be significant. As the UK would no longer be part of the ‘single market’ goods would be subject to VAT and customs duty charges when crossing borders – for example, the UK to Germany would no longer be regarded as taking place in the single market.”

In the case of other taxes the UK essentially makes up its own rules, so who knows what lies ahead.  

Saving and borrowing rates

The Bank of England and its MPC are, and would remain, autonomous when it comes to management of our domestic economy – and significantly, the setting of the base rate for savers and borrowers.

Yet with little prospect of a significant rise in rates on the cards, savers are still likely to find they earn measly interest on their cash accounts for years to come.

Stock market investment

Do markets see an exit as a threat? Turning to investors, Lowcock says: “Given how far away the referendum is it is very difficult to say with great certainty what will happen to markets.

“However, uncertainty can drive markets in the short term, so a vote to leave may create a lot of uncertainty which could result in a weaker currency and affect businesses.” But suggesting a portfolio of UK companies that would win or lose if we left the EU isn’t something asset managers are willing to predict.

Meanwhile, some say the market might not be spooked. Jason Gaywood, director of corporate premier exchange services at foreign currency exchange brokers HiFX, adds: “A vote to leave would probably reflect the perception of being better off outside the EU than within it.

“On that basis, sterling and UK equities would probably rally as global financial markets reward our separation from the sinking ship that is the Eurozone.”

Ultimately, departure from the EU will prompt a period of uncertainty for our personal finances, as even the experts can’t agree on the impact. The ramifications of a 'no' from UK voters in a referendum are difficult to predict – only time will tell.

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