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When the Chief Counting Officer announces the overall result of the United Kingdom Referendum on European Union membership at Manchester Town Hall in the early hours of the morning of Friday 24th June, many people are asking “what happens next?” if the vote is to leave.
Undoubtedly, the either/or wording of the referendum question “Should the United Kingdom remain a member of the European Union or leave the European Union?” is more favourable to those campaigning to leave rather than yes/no “Should the United Kingdom remain a member of the European Union?”. As Barack Obama showed in his initial presidential campaign, a Yes Movement can gain overwhelming momentum.
Despite the near-hysterical pronouncements in the run up to the referendum, the short answer is that the only certainty is that there will be an intense period of uncertainty.
It is akin to leaping off a ledge and not knowing whether the landing is a bouncy castle or a slurry pit. For either side to assert that they know the outcome is highly disingenuous.
The first important point is that the referendum result is a demonstration of the voters’ opinion that is not in itself legally binding. Parliament would have to pass all the necessary legislation for the UK to exit the EU and ratify the final withdrawal agreement. Technically, the House of Commons or the House of Lords could vote against any or all of this. However, the constitutional consequences of any effort to block the will of the people are unimaginable.
Under the Lisbon Treaty, the UK would have two years during which to negotiate its withdrawal from the EU and put in place new arrangements, and it is these new arrangements that will ultimately determine whether the UK as a country and people individually are better or worse off.
In the intervening period, existing agreements such as those for the Financial Services Compensation Scheme, the European Health Insurance Card and the cap on mobile data roaming charges are broadly likely to continue.
The only precedent of a country voting to leave the EU was Greenland in 1982 and their exit was driven specifically by EU fisheries policy. Whilst their economy has prospered and grown since leaving the EU, it would be misleading to claim be any natural correlation to the UK.
The two most likely immediate impacts of the UK voting to leave, that almost all economic forecasters agree on, are that the pound and the UK stock market would fall dramatically as soon as the markets open and would continue on a downward trend in the following months.
The effect on employment in the UK is less clear in the short-term. Global financial institutions such as JPMorgan Chase and Citigroup have warned that a leave vote would result in a shift in jobs from London to other European centres.
On the other hand, the UK would remain an attractive option for the international entrepreneur to set up a business with the comparatively low rates of Corporation Tax, the flexible labour laws and there being no requirement for a resident Director.
On the pound, forecasters are predicting an overall fall of up to 20%. How much of this has already been factored into the current value is unclear but the concern here is that this would trigger an inflationary cycle.
As the pound falls, imports become more expensive pushing up the rate of inflation and, thereby, reducing the average standard of living. Moreover, higher inflation could prompt the Bank of England to increase interest rates that, in turn, could lead to an increase in mortgage rates.
It is astonishing to think that the Bank of England base interest rate has been stable at 0.5% since March 2009.
As ever in economics, the impact of a fall in the value of the pound would be toned. For exporters not reliant on imported raw materials and for the UK tourism industry, this would be potentially good news.
A fall in the value of the UK stock markets can be seen to have little impact on day-to-day life but the consequences for pensioners and savers could be dire with so much of pension funds’ investments held in UK bonds and shares.
For expat pensioners living in other EU countries, their future becomes even less sure. The current arrangements allow them access to the medical facilities with the cost of the care covered by the NHS until the pensioner becomes permanently resident in that country. The continuation of these arrangements, together with the ability to receive their UK pension, could eventually come down to a bilateral agreement with that country.
The greatest danger of a vote to leave falls under the ‘law of unforeseen consequences’, that it triggers a domino effect that causes a global recession. Again, no one knows whether this will be the case.
Given that there is so much at stake when the UK votes on Thursday, it is, frankly, deplorable that both campaigns have relied so heavily on scaremongering and hyperbole rather than proper debate.
At the end of the day, the EU is far from perfect but, there again, so is the UK parliament. It remains to be seen, in a matter of days, whether the British people are going to take a leap into the unknown.
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