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EU referendum: impact of an EU exit in key UK policy areas

Published Friday, February 12, 2016

This paper looks at the current situation in a range of policy areas and considers how it might change if the UK left the EU: would UK citizens benefit? This would depend on how the Government filled any policy gaps left by withdrawal.

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Overview

In some areas, the environment, for example, where the UK is bound by other international agreements, much of the content of EU law would probably remain. In others, the Government might decide to retain the substance of EU law, or to remove EU obligations from UK statutes.

Much would also depend on whether the UK sought to remain in the European Economic Area and therefore continue to have access to the single market, or preferred to go it alone and negotiate bilateral agreements with the EU.

Business and trade

Trade

The EU is the UK’s most important trading partner. In 2014 it accounted for 45% of UK goods and services exports (£230 billion) and 53% of UK imports (£289 billion).

The share of UK exports going to the EU has declined in recent years. In 2002 the EU accounted for 55% of UK exports. As the Review of the Balance of Competences put it, the central argument is whether the benefits of membership of a large trading bloc exceed the costs.

Some argue that membership of the EU allows the UK to benefit from better trade deals than it would be able to negotiate on its own.

On the other hand, EU membership entails some compromises and limits the UK’s ability to prioritise its own interests. Leaving the EU would allow the UK to set its own trade and investments policies but there could be costs in doing so on its own rather than as part of a group of countries.

Overall economic impact

The impact of withdrawal would be most felt in areas such as foreign direct investment (FDI), the UK’s contribution to the EU Budget and the effect of immigration on the labour market. There is disagreement as to the severity of the impact on FDI of a UK withdrawal.

On the whole, it can be concluded that membership of the single market is one of a number of important determinants of FDI; but outside the EU, the UK may be able to establish a regulatory regime more favourable to overseas investors, which could offset the effect of its departure.

The Government contributed an estimated net £8.5 billion to the EU in 2015, around 1% of total public expenditure and equivalent to 0.5% of GDP. (source: HM Treasury EU Annual Statement)

Although the UK is a net contributor to the EU, certain regions where living standards fall short of the EU average receive significant levels of support from the budget through the European Regional Development Fund and the European Social Fund, boosted by matched funding from government or the private sector.

Withdrawal would leave a policy vacuum which the Government would have to fill to avoid certain regions and sectors losing out.

Immigration and labour market

If the UK wished to remain in the single market but outside the European Economic Area (EEA), like Switzerland, it would probably have to accept certain EU rules by arrangement. Whether these would include the free movement of people would depend on the outcome of UK-EU negotiations.

Most studies on the impact of migration on the UK economy have found weak or ambiguous effects on economic output, employment and wages on average. However, impacts vary according to the characteristics of migrants and wider economic performance at that time, and across different groups of workers.

Research on the impact of immigration on the public finances generally suggests the overall effect is small. Studies indicate differing impacts for migrants from inside and outside the EU, and for recent migrants compared to those who have been in the UK for longer.

Business and financial services

The argument centres on whether the benefits of having a more tailored and flexible national regulatory regime outweigh the loss of access to the single market that may come with pursuing an independent agenda.

A huge amount of existing financial services regulation is derived from the EU. The UK has frequently led reform in this area. It is likely therefore that a significant amount of this legislation would remain post-withdrawal, though not necessarily in the same form or to the same extent.

The majority opinion of City firms is that the UK should remain within the EU. 

Employment

An EU exit could foreshadow significant change to UK employment law, much of which flows from Europe. The Government would face pressure from employers’ associations to repeal or amend some of the more controversial EU-derived employment laws, such as the Working Time Regulations 1998 and Agency Worker Regulations 2010

But trade unions would probably strongly oppose any perceived rowing back on rights originating from the ‘Social Chapter’. 

Withdrawal from the EU would allow for change to the following areas of employment law, which stem largely from Europe: annual leave, agency worker rights, part-time worker rights, fixed-term worker rights, collective redundancy, paternity, maternity and parental leave, protection of employment upon the transfer of a business and anti-discrimination legislation.

Food and environment

Agriculture

Departure from the EU and the Common Agricultural Policy (CAP) and its subsidy and regulatory regimes would have an impact on UK farms and their income. The CAP represents almost 40% of the EU budget and the largest element of the UK’s EU costs.

Leaving the regime would probably reduce farm incomes, as past Government positions on CAP reform have indicated UK Government and Devolved Administrations may be unlikely to match the current levels of subsidy and/or would require more ‘public goods’ in return for support, such as environmental protection, which the UK Government views as the overarching market failure in this sector.

However, it might bring wider benefits to the economy as a whole, as the UK would be free to negotiate bilateral trade deals with countries outside the EU and at the World Trade Organization (WTO), and would have more flexibility on pricing.

Fisheries

The failure of the Common Fisheries Policy (CFP) has led some to suggest that fisheries management would be more effective if the UK withdrew from the EU.

One issue that would have to be determined from the outset of withdrawal is whether the UK would allow access by foreign vessels to the UK Exclusive Economic Zone (EEZ).

If so, the UK would have to maintain a very close working relationship with the EU to enable the monitoring of landings and to co-ordinate on wider regulation in the sector. It would also have to agree some kind of mechanism for agreeing catch limits.

If the UK decided to exclude foreign vessels and assume full responsibility for fisheries in the UK EEZ, there would be a number of implications for the UK and the management of fisheries in the area.

Environment

The environment is an area in which UK and EU law have become highly entwined.  The effects of an EU exit would depend on whether the UK decided to lower, raise or maintain current environmental requirements in areas such as air and water quality, emissions, waste, chemicals regulation or habitats protection.

If the UK left the EU, it would have more scope for changing environmental objectives in the UK and there would also be a less far-reaching judicial process to enforce the implementation of environmental policy and challenge its interpretation. 

Energy and climate change

The Government is unlikely to want to reverse the trend for more transparency and a level playing field at EU level which is currently being implemented by the Commission’s Third Energy Package and by the 2015 Framework for Energy Union.

An EU exit would not remove the legally binding UK climate targets under the Climate Change Act 2008   although it could increase focus on all aspects of UK-based generation. This could especially be the case if exit resulted in poorer security of supply through decreased interconnectivity to Europe, reduced harmonisation of EU energy markets, or less investment into the UK by multinational companies.

An exit would affect the UK’s international climate targets under the United Nations Conference on Climate Change (UNFCCC). Currently the UK negotiates as a part of the EU block and has internally set targets that together with those of other Member States aims to meet the EU’s overall target. 

Withdrawal from the EU would have to address that lack of a UK specific target under UNFCCC. It was also widely recognised in the competency review that the negotiating as part of an EU block was beneficial as it had more influence at an international level than if individual Member States acted alone.

Legal services

Human rights

If the UK withdrew from the EU, it would no longer have to comply with the human rights obligations of the EU Treaties, including with the EU Charter of Fundamental Rights.

Although the Charter was not intended to create any new rights, a breach can result in the UK courts disapplying UK Acts of Parliament – something they cannot do under other human rights instruments. The impact of the Charter is now being considered as part of the Government’s consultation paper on a new British Bill of Rights.

Immigration

Depending on the nature of any future EU-UK relationship, leaving the EU could have significant implications for the rights of UK citizens to travel to and live in EU/EEA Member States, and for EU/EEA nationals wishing to come to the UK.

On the other hand, if the UK were to negotiate a relationship with the EU similar to the EEA states or Switzerland, it might find that it did not have any greater scope to control EU immigration to the UK than it did as an EU Member State.  

The UK already maintains its own border controls. It is not part of the internal border-free Schengen Area, and Border Force officers conduct checks on EU/EEA travellers crossing UK ports of entry, as well as British citizens and non-EU/EEA nationals.

It has not opted in to EU measures facilitating legal migration of third-country migrants. But the UK recognises that there are benefits to practical co-operation and information-sharing with other Member States, for example to strengthen responses to organised immigration crime and current and future migratory pressures. 

Police and justice co-operation

Between 1995 and 2009, the Member States of the EU agreed approximately 135 measures relating to police and judicial cooperation in criminal justice matters, which were subsequently incorporated into the main body of EU law under the Lisbon Treaty. The UK is able to opt in to individual Home Affairs and Justice measures, and has chosen to opt in to 35 of these measures.

These measures include:

  • the European Arrest Warrant, which governs the extradition of individuals between member states to stand trial or serve a sentence;
  • the Schengen Information System II, a large-scale database that supports external border control and law enforcement cooperation by enabling police and border guards to enter and consult real-time alerts on certain categories of wanted or missing persons and objects;
  • Europol, the EU's law enforcement agency, which assists Member States to conduct investigations in relation to terrorism and organised crime, by providing intelligence exchange, support and analysis. 

If the UK were to leave the EU it is possible that these arrangements could be replaced with bilateral or multilateral agreements. However it has been argued by those in favour of remaining in the EU that this may take a considerable length of time, and that the outcome of negotiations on such matters would be uncertain.

 

Society

Social security

Entitlement to welfare benefits for people moving between EU Member States is closely linked to free movement rights.  UK withdrawal from the EU could have significant implications both for EU/EEA nationals living in or wishing to move to the UK, and for UK expatriates elsewhere in the EU/EEA and those considering moving abroad.

The UK could seek to secure bilateral social security agreements on reciprocal rights with individual EU/EEA states, but negotiations could be difficult and protracted.  Alternatively, the UK could seek a single agreement with the EU/EEA as a whole. 

If a UK withdrawal meant the end of free movement rights, the UK would be able to impose restrictions on access to many social security benefits via immigration law. Entitlement to contributory social security benefits could be limited by limiting access to employment.

It would also be possible to restrict the ability of EU nationals to apply for social housing. Withdrawal might also have implications for UK nationals living in other EU/EEA countries, since Member States would be free to impose corresponding restrictions on entitlement to their benefits.

Health

EU citizens benefit from reciprocal access to healthcare through the European Health Insurance Card (EHIC). If the UK remained in the EEA it might be able to continue to participate in the EHIC scheme, or, subject to negotiation with EU Member States, participate on a similar basis to Switzerland.

Higher education

If the UK left the EU, the Government would not have to provide student loans or maintenance funding for EU students. However, the UK would probably lose access to EU research funding and student mobility schemes. 

Overall, universities and students would probably lose out, and universities are very concerned about their research funding. But the Government would save money on student finance. 

If EU students were classed in the same way as overseas students and charged higher fees, this could have an impact on numbers coming to the UK to study and on fee income for universities.

Consumer policy

A huge amount of UK consumer protection regulation is derived from the EU. For example, directives implemented in the UK protect consumers from unsafe products, unfair practices, misleading marketing practices, distance selling etc.

If the UK sought to remain in the EEA, it would join the EEA/EFTA states (Iceland, Liechtenstein and Norway), which have participated in EU consumer programmes since the EEA Agreement came into force in 1994.

Transport

The UK would remain a member of the UN and its attendant agencies, and it is thus unlikely that the broad framework of UK law on aviation and shipping would change; similarly we would also likely apply those vehicle rules set down by the United Nations Economic Commission for Europe (UNECE).

One could also envisage the UK and the EU agreeing to maintain common rules on driver and vehicle licensing to ensure continued free movement across the continent. The UK might negotiate an agreement with the EU on air routes, safety and security etc.

There would likely be some areas where the UK would liberalise the arrangements agreed to across the EU.

International affairs

Foreign and defence policy

Acting through the EU means a larger aid budget, the promise of access to the largest consumer market in the world and a louder political voice. All of these can be significant ‘soft power’ tools in the pursuit of European interests.

If the UK no longer co-ordinated its policy with Member States, it would lose access to these shared tools. However, many UK actions are taken in conjunction with the US rather than the EU.

Without the UK’s defence capacity and foreign policy experience, the EU’s voice in the Middle East, for example, would be less influential. But it can also be argued that an EU exit would not make much difference to the UK’s capacities in this region, that the US remains the most significant power there and that the UK could co-ordinate its Middle East policies more closely with those of the US.

In terms of military power and projection, a UK withdrawal would more likely place the EU at a disadvantage, with fewer assets and capabilities at its disposal, particularly certain strategic assets such as tactical airlift and intelligence, surveillance and reconnaissance assets.

The UK’s ability to project military power would be largely unaffected, and any military shortfalls could be compensated for through bilateral arrangements. Ensuring the success of Common Security and Defence Policy (CSDP) operations remains in the UK’s interest, but outside the EU the UK could choose to continue its participation in CSDP operations as a third party state.

International development

The UK channels funds for development cooperation and humanitarian aid through two budget lines, both of them managed by the European Commission: the development part of the EU budget, and the European Development Fund.

In 2014, about 10% of the UK’s aid budget would have required reallocation if the UK had not been an EU Member State.

The devolved legislatures

If the UK left the EU, there could be further policy and legislative divergence in areas of devolved competence, as the UK Government and Devolved Administrations would no longer be required to implement the common requirements of EU Directives.

This would probably be particularly noticeable in policy areas such as the environment or agriculture and fisheries, which are currently strongly governed by EU policy and legislation.

Scotland

Scotland is more pro-EU than England and has benefited from both pre-allocated and competitive European funds over the last four decades.

The Scottish Government has set out its own ideas for EU reform. The first priority identified by the Scottish Government is to encourage the EU’s prioritisation of key economic and social policies such as delivering the growth and competitiveness agenda, tackling youth unemployment, developing workers’ rights and supporting freedom of movement.

The SNP called for a ‘double majority’ rule for the EU referendum, whereby all four nations of the UK would have to back withdrawal before exit is possible. 

Wales

Support for continued EU membership had consistently led polls over the past 15 months in Wales. The country has access to considerable funding opportunities from the EU, notably from the Common Agriculture Policy and Structural Funds (as well as many other funding streams), estimated to be worth over €5 billion to Wales for the period 2007-2013.

EU membership has also given Wales a direct representative voice in the EU Institutions and in the EU decision-making process, which would be affected by UK withdrawal.

Northern Ireland

Northern Ireland benefits significantly from EU funding: a total of €1,211 million in EU Regional Policy Funding 2014-20.

The impact of a UK withdrawal on Northern Ireland would also be different from that in the rest of the UK because NI is the only region of the UK to share a land border with another EU Member State. UK withdrawal would mean that an external border of the EU would run through the island of Ireland.

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