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Talking points

The key question about the origins of Brexit that so few get right

Brexit stems in part from a decision taken by the UK in 2004 - but too few people today are aware of that, according to columnist Merryn Somerset Webb

21/01/2019

Merryn Somerset Webb

Merryn Somerset Webb

Editor in Chief, MoneyWeek, and Financial Times columnist

In 2004, the European Union expanded to include 10 new, mostly formerly Eastern Bloc countries. Question: which of the existing EU countries gave access to the citizens of the new joiners who wished to migrate in order to work?

This is a question a Brexiteer friend of mine asks everyone he meets – and one it is worth asking most people before you get too deep into a Brexit conversation. The answer they give will often tell you pretty quickly whether or not they understand what happened in the UK in 2016.

The obvious answer to the question, and the one most people still give, is that the new citizens of the enlarged bloc could work in all the existing EU countries. After all, isn’t that the whole point of freedom of movement? But the obvious answer is wrong.

In fact, only Sweden, Ireland (where access to benefits was limited for two years) and the UK actually opened their borders.

Everyone else, nervous that the huge wage differentials between east and west would lead to too fast a wave of immigration, put in place “transitional controls” that prevented access to their labour markets for up to seven years.

The result?

Everyone looking to exploit east vs west wage differentials headed (perfectly rationally) for the UK. On the unfortunate assumption that all EU states were up for full freedom of movement, the UK government predicted that 5,000-13,000 migrants a year would arrive in the 10 years post EU expansion.

Instead, from 2004 to 2012, around 423,000 did. There is much argument about the effect of this. Ask a construction worker or a plumber and they will tell you that it catastrophically reduced their wages.

Ask most academics and they will tell you their studies show that any effect on wages has been barely statistically significant. Ask an economist with no political point to prove and he may point out, as Charles Dumas does in his useful book Populism and Economics, “the obvious economic reality that increased supply depresses the price of any commodity.”

He might also argue (as a footnote in one of the most cited studies does) that “there is a weaker adoption of advanced technology which is complementary to skilled labour in the presence of large numbers of the unskilled.”

The problem with the studies into the matter is that they do not – cannot – take account of the perfectly reasonable tendency of employers to hire cheap labour when it is available, rather than to invest in all the things that raise productivity and, of course, real wages.

The existence of workers who will take low wages effectively creates low-wage jobs, or as a Bank of England blog put it earlier this year, one result of the large
inward migration of employees from Eastern Europe looks to have been that “the composition of the economy and workforce [has] pivoted towards lower value-added services and jobs, resulting in downward pressure on average wages and productivity levels.”

Wherever you stand on these arguments, there is no doubt as to how this huge wave of immigration in 2004 – and the one that followed it in 2009 (as the European crisis pushed more workers into the UK) – has affected UK attitudes.

In 1994, according to data from the Migration Observatory at the University of Oxford, a mere 5% of respondents thought of immigration as a salient concern. That number started to rise in the early 2000s (it overtook concerns about the NHS in 2006) and hit a peak in the year before the 2016 referendum. The number has softened since, with studies showing that those who voted leave now feel more neutral than negative about EU immigration.

It’s hard to nail down quite why: it could be that net immigration from the EU is already lower than it was; or it could just be that the idea that immigration will soon be somehow controlled makes people less worried. Either way, the correlation between the UK government’s attitude to freedom of movement in 2004, and the population’s reaction to it, make it obvious that Theresa May is right on one thing.

Any deal that is to be acceptable to a large part of the leave-voting population has to include an end to – or at least real restrictions on – freedom of movement from EU countries. Keep that in mind and May’s desperate efforts to force her Withdrawal Deal through make more sense.

The views expressed here are those of Merryn Somerset Webb

Author

Merryn Somerset Webb

Merryn Somerset Webb

Editor in Chief, MoneyWeek, and Financial Times columnist

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