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Editor’s blogDecember 13 2013

Business trumps politics in the UK's EU decision

The economic benefits of being in the EU mean that the UK will inevitably elect to maintain its membership, despite misgivings about EU labour rules.
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The UK may stay in the EU but it is difficult to believe that the institution can ever be satisfactorily reformed. By now, the 32,000 employees (21,000 in Brussels) have created a bureaucracy that has created its own logic and is impervious to outside criticism – even when this comes from heads of state. The leaders of the UK, France and Germany have all expressed concern about the free movement of labour but the standard commission response has been that this is core to the single market concept and in any case generates wealth.

There is no doubt that the single market is good for business and particularly good for financial services. TheCityUK, a body which champions UK finance, has recently issued a report entitled UK and the EU: A Mutually Beneficial Relationship.

In this we learn that the EU is the single biggest market for UK finance exports generating a trade surplus of £15.2bn (€18.1bn); that London is host to a majority of EU business in areas such as interest rate over-the-counter derivatives, foreign exchange, hedge funds; and that about 40% of the tax take from UK financial services is from international business operating in the UK.

On the labour front, TheCityUK notes that there are 1.4 million British citizens living elsewhere in Europe compared to 2 million people from other European countries living in the UK. EU citizens account for 3.3% of the UK population but make up 4.5% of the labour force – in other words they are younger and more economically active than the general population.

So why does the man in the street have so many misgivings about EU membership that the UK’s ruling Conservative Party has committed itself to an in/out referendum if it wins the next general election in 2015? It is because the majority of people don’t work in the City yet do find themselves competing for stretched public services alongside EU migrants.

They are also mindful of the huge tussle over the EU budget early in 2013, and the intransigence in Brussels, at a time when national budgets were being chopped as well as more recent reports that Brussels misspent nearly €7bn of its budget last year. The common agricultural policy has dropped out of the headlines but still accounts for 43% of EU spending – mostly on subsidies to farmers.

It’s difficult to see how this monolith could ever be comprehensively reformed and it’s difficult to understand why a huge bureaucracy is needed in order to have free trade across Europe.

I suspect that come any UK referendum, a combination of business and political persuasion will deliver a staying in vote (economically the best outcome) and that Brussels will take this as a green light to build its edifice ever higher.

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