Friday 29 Mar 2024
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SINGAPORE: When HSBC announced in late April that it might relocate its headquarters outside the UK, this wasn’t really big news. Britain’s biggest bank has after all made the same statement every few years as part of an ongoing review of its operations.

This time round however, the statement caused a big stir as it was made just two weeks before the UK general election, with HSBC citing concerns about economic uncertainty owing to the UK’s possible exit from the European Union. And this is now a highly probable scenario, as the Conservative government has just put through legislation to hold a referendum on Britain’s EU membership by end-2017.

This referendum formed a crucial part of the Tories’ election manifesto, but is not much welcomed by the British business community, who were otherwise pleased with the party’s general election win which helped secure continuity and stability in the nation’s economy.

The in-out referendum will ask voters whether or not the UK should remain a member of the EU, and big businesses are generally against a “Brexit”. Calling on British businesses to be vocal about the benefits of staying in the EU, Sir Mike Rake — president of Britain’s biggest business lobby group, Confederation of British Industry (CBI) — notes that no one has yet provided a “credible alternative future” to Britain’s EU membership.

There is undeniably much at stake should Britain choose to leave the EU, from having to give up free trade access to the EU Single Market and billions in EU agricultural subsidies for its farmers, to losing influence on Euro-area policies and stronger international negotiating power as part of the EU.

Members of the British Chambers of Commerce seem to agree: 63% of respondents for its Business EU Barometer for 1Q2015 believe that a full withdrawal from the EU would be bad for Britain’s business and economic prospects. The barometer, which gauges business sentiment on the UK’s relationship with the EU, also found however that 55% of respondents would like to see the UK regain specific powers from Brussels, which they believe will positively impact their businesses.

There has been growing concern among many Britons, whether individuals or businesses, about the UK’s existing relationship and status in the EU. Many are unhappy about the growing regulatory burden imposed by the EU on its member countries, which some say unduly restricts small and medium-sized firms who do not trade in the EU. Others contend that tighter EU rules on banking and financial services, including a proposed Tobin-style financial transaction tax, may jeopardise London’s competitiveness as a major financial centre.

In fact, such concerns have led to a split in opinion among some quarters of the business community, and there is a sizeable number of business leaders with Eurosceptic views, as represented by business campaign group Business for Britain.

Its chief executive Matthew Elliot writes in the Daily Telegraph recently that most of its members support the referendum as providing the British government with the leverage to renegotiate better terms for the UK within the EU. He adds that up to 52% of business leaders surveyed in a YouGov poll for foreign policy think tank Chatham House support a looser trading relationship between Britain and the EU.

No surprise then, that many closely followed Prime Minister David Cameron’s ‘charm offensive’ tour of European capital cities just over a week ago to pursue EU reforms and renegotiate Britain’s terms of membership ahead of this month’s EU summit in Brussels. Among his reform proposals are the UK opting out of the EU’s vision of an “ever closer union”, greater powers for national parliaments to block EU legislation, and tougher restrictions on EU migration.

Cameron faces the uphill task of trying to win support for his reforms from his European counterparts while at the same time needing to appease the Eurosceptics back home.

Some of his ministers are already taking a hard stance: Foreign Secretary Philip Hammond has insisted that the UK will exit the EU unless the major reforms are made through treaty changes. This move is seen by those in Europe as politically risky and unrealistic, as treaty changes are time-consuming, requiring the consensus of EU members. In his first House of Commons speech since becoming MP for Uxbridge and South Ruislip, colourful mayor of London Boris Johnson stressed that Britain must be prepared to “strike out” for an “alternative future” if it is unable to successfully renegotiate its EU membership terms to its satisfaction.

For Britons, there are many pros and cons to voting Yes or No in the referendum, and it certainly has far-reaching implications on the British economy. On the one hand, the worst-case scenario of a Brexit will cost the UK economy 2.2% of its total GDP by 2030, according to a study by pro-EU reform think tank Open Europe. On the other, UK’s GDP could increase 1.6% should Cameron’s government succeed in its negotiations.

Right now, however, anxiety among investors about the uncertainty of Britain’s future vis-à-vis the EU is impacting on the nation’s foreign direct investments. Consultancy firm EY’s annual survey on the UK’s investment attractiveness found that 31% of the 406 investors surveyed would either freeze or reduce their investments in the country until the EU referendum outcome is known.

Hence, British businesses are calling for the referendum to be held as soon as possible, with May 2016 cited as an optimal time for the referendum, to coincide with local elections in the country and hence ensuring a good turnout for the poll. It is hoped that the referendum will settle the matter of Britain’s EU membership once and for all, as only when such uncertainty is put to rest will it be back to business as usual for Britain’s economy.

Lim Yin Foong was founding editor of Personal Money, a Malaysian personal finance magazine published by The Edge Communications. She is currently based in the UK.

This article appeared in the Corporate of Issue 680 (June 8) of The Edge Singapore.

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