Leading UK industry group sees ‘serious downsides’ of Brexit

The UK’s leading business lobby group has issued a clear message that the UK should remain in the EU, as the country prepares for an in-out referendum campaign.

The Confederation of British Industries (CBI) published a report, Choosing Our Future, which says leaving would have "serious downsides" for UK industry.

It includes quotes from companies and trade bodies about the boost to their bottom line from remaining in the European single market.

“Just as ‘more Europe’ isn’t the answer to every question, neither is ‘no Europe’,” the report says. “While it’s not a uniform view, the majority of firms believe that the pros of EU membership outweigh the cons.”

CBI backs the UK government's efforts to negotiate changes to the country's relationship with the EU before the referendum. Prime Minister David Cameron has promised a vote by the end of 2017, with many expecting it will be held next year.

John Cridland, CBI director general, said, "The CBI speaks for 190,000 firms of all sizes, in every sector and in every corner of the UK, and most of our companies want the UK to be in a reformed EU. For business, the benefits of full membership outweigh the disadvantages, but the EU must work better.

"The single market has been the solid foundation of our economic success in recent decades, giving us direct access to eight times more consumers than in the UK alone and ensuring we can go toe-to-toe with larger economies on major trade deals, creating jobs and economic growth here in the UK."

Another big entrant to the debate was the Bank of England, which has given its take on the issue of whether or not EU membership supports the bank’s brief of maintaining monetary and financial stability.

Its analysis says being part of the EU has made the UK economy more dynamic, meaning wealthier and more successful.  

However, the Bank said the flipside of EU membership is increased exposure to problems experienced by other member states, such as the recent euro crisis.

“The UK's greater openness as a result of EU membership provides potential for both greater growth and greater shocks," the Bank’s governor Mark Carney said in a speech in Oxford on Wednesday evening.  

‘Blows a hole’ in Out campaign

The CBI report says claims that a British economy set free from Brussels legislation would retain access to the European single market and no longer put cash into the EU budget are misleading.

The report recounts the nine years Switzerland spent negotiating its first trade deals with the EU, which resulted in a partial access, with no say over the rules with which it must comply.

Meanwhile a Norway-style arrangement would mean the UK still had to follow EU rules, including those allowing workers from EU countries to come to the country, something many UK critics are strongly against.

The report “blows a huge hole in the out campaign's argument,” said Will Straw, executive director of the pro-EU lobby group, Britain Stronger in Europe. “Being part of Europe boosts the UK economy by increasing our trade and investment in turn supporting millions of jobs here at home,” he said.

However Vote Leave, one of two campaigns pushing for a UK exit, said in a statement that a lot of business groups are not lining up behind CBI’s claims. “The CBI claims that 80 per cent of businesses back EU membership, but we know this isn’t true and that business is divided.”

Carney told the audience in Oxford that the greater openness arising from membership of the EU boosts the size of markets that UK households and firms can access. “In turn, trading in larger markets spurs innovation and promotes the adoption of new technologies from abroad. It also intensifies competition and drives efficiency improvements not least by allowing firms to exploit economies of scale,” Carney said.

The openness associated with the free movement of labour can help better match workers with firms, alleviating skills shortages and boosting the supply side or the potential growth rate of our economy.

However, Carney said, the impact of openness on dynamism is not unambiguous. Although openness supports dynamism, integration inevitably brings greater exposure to foreign shocks, such as the banking crisis and the Euro crisis.