Hugo Dixon: why Britain is better off in Europe

Merryn Somerset Webb talks to journalist and author Hugo Dixon about why he thinks Britain is better off in Europe than out of it.

• If you missed any of Merryn’s past interviews, you can see them all here.

Merryn: Hi, I’m Merryn Somerset Webb, editor-in-chief of MoneyWeek magazine, and welcome to another one of our video interviews.

Here with me today is Hugo Dixon, who is the founder of Breaking Views and the author of this just published book, The In/Out Question. If you look at the rest of the title you will see that Hugo’s answer to the Brexit question is that we should definitely stay in the EU. So, we’re going to talk a bit about that today.

Those of you who have watched our videos will have seen that we’ve recently interviewed several people who are very firmly in favour of Brexit. So, what I want to do here is to ask Hugo to put the opposite case.

Regular readers will know that I’m rather pro-Brexit myself, so don’t think that this is going to be a debate particularly, because it’s not. I just want Hugo to put his viewpoint so we can all see both sides and start to make rational decisions about everything. So, Hugo.

Hugo: Great, Merryn.

Merryn: Your side. The staying in side. Let’s start with something very simple. Give us the three top reasons why we’d be nuts to leave the European Union.

Hugo: OK, I think the first is the economy. If we leave the EU we will struggle to have access to the single market, which accounts for half of our trade.

Merryn: Half, or 40%?

Hugo: Half of our trade. If you look at both exports and imports, look at goods and services, last year it was 49%. OK, you can call it 49% if you prefer, but half seems to me a good round number.

The second thing is that we would also struggle to have as much influence on a whole series of other political foreign policy issues that concern us, things that cross borders, such as cross-border crime, terrorism, climate change, etc, if we pulled out of the EU.

And the third reason is Scotland, that if we leave the EU the Scots will almost certainly have a second referendum on quitting the UK and they probably will quit the UK. Now, of course if you don’t want Scotland to stay in the UK then that actually might be a reason to vote for Brexit, but if you think that actually the UK is stronger by keeping Scotland in the UK, that’s another reason to vote to stay in the EU.

Merryn: I suspect you’ll find that an awful lot of English people are now so fed up with Scotland they would vote for Brexit just to get rid of them, but we’ll see.

Hugo: If that’s their view, then we can discuss that too. I think it actually would be damaging for us to lose Scotland.

Merryn: Why don’t we just knock Scotland out of the way quickly? We’ll go through all three of these things, but let’s start with Scotland.

Hugo: OK, good.

Merryn: You think that the Scottish are much more likely to vote to stay in than the English, and if they were to vote to stay in and the English were to vote to stay out the Scottish would demand another referendum. The first point to make there surely is that the polls don’t show the Scots and the English as being that far apart any more.

You know, it’s one of the only things that the social attitude survey ever shows to be a statistically significant difference between the rest of the UK and the Scots is European Union membership, but that gap has been narrowing and narrowing over the last five or six months. So, it’s not a given, is it?

If the English voted out and the Scots voted in, I think it would be almost impossible for us to deny the Scots a second referendum

Hugo: It’s not an absolute given, but I still think there’s a gap. Certainly the polls that I’ve seen show a gap, and if you found that the English voted out and the Scots voted in, I think it would be almost impossible for us to deny the Scots a second referendum.

Merryn: And do you then think there’s a possibility that the Scots will then vote out, to leave the UK?

Hugo: Yes, there are many who actually felt that they’re having buyer’s remorse of actually having voted to stay in the UK last year. If you then added a second reason, which is that they wouldn’t be part of the EU anymore, assuming as it were that more than half of them actually want to be part of the EU, then I think that would give you an extra fillip.

Merryn: Yes, I know I said I wasn’t going to disagree with you, but I think that’s absolute nonsense.

Hugo: Why do you think it’s nonsense?

Merryn: Well, I think there’s very little buyer’s remorse and you see the polls moving after the referendum to roughly where they were before the referendum.

When people vote – as I’m sure we’ll get on to later – they tend to vote for the status quo, and one of the main reasons of course that a lot of people voted to leave the rest of the UK in the referendum was because they believed that the economy in Scotland would be better as a result, but of course now with the plummeting oil price, which was the only argument for a better Scotland economically post-leaving, with the oil price well below $40 everyone now knows that that’s obvious nonsense.

So, my own view is that it’s incredibly unlikely for the Scottish to vote to leave the UK in another referendum.

Hugo: I see. Well, I mean, you live there, so you may have more information than I do on that point.

Merryn: And also of course, you know, there’s this idea I think possibly in the rest of the UK, maybe even in the rest of the world, that there is now a majority of Scots who would like to see Scotland separate from the rest of the UK, but that’s not what the polls tell us. A good 50% plus of the Scots are still very happy inside the Union.

Anyway, I mean, that’s an argument that unfortunately is going to run and run and run, but I think it’s very unlikely that the Scots would leave. Well, I’m not going to argue with you. I discount that bit completely.

Hugo: Well, I wouldn’t be nearly as sanguine as you, the very, very unlikely.

Merryn: Oh, I’m not sanguine. I mean, risky but…

Hugo: I think very, very unlikely is an exaggeration from your perspective. And whatever you think the chances are, the chances of the Scots leaving the UK go up if we vote to leave the EU. So, at least we agree on that point.

Merryn: They do, and actually regardless of what the Scots might vote were there a second referendum, the very fact of a second referendum would be so unbelievably damaging to Scotland and the Scottish economy that simply having the referendum is a risk to the Scottish economy and hence to the UK as a whole, regardless of the outcome. So, I’ll accept that that’s a risk, but as a whole I’m not sure it’s quite enough. So let’s go to the important issues. Let’s go first to the economy, shall we?

Hugo: Yes, well, as I say I think we’d struggle to get as good access to the single market if we left the EU.

Merryn: Let’s talk about that. How would that happen? So, we vote out. Nothing’s going to happen in the first year, the first two years. It’s a relatively lengthy negotiation to leave apart from anything else, right?

Hugo: Well, there’s a two year negotiation …

Merryn: So, no companies turn around the day after the referendum and go, I’m not going to deal with these people anymore, they’re not inside the EU. So, nothing happens initially.

Hugo: I’m not so sure about that actually.

Merryn: What, I’ve been dealing with that machine part company in Birmingham for 25 years, but now that England isn’t in the EU anymore I’ve decided not to? That’s not quite how it works, is it?

Hugo: No, that’s not what I said. But I think that in terms of day to day trade nothing would change, but in terms of investment things might change as soon as you’ve actually had that vote, because I think then companies that are thinking – either British companies or foreign companies – who are thinking of investing in the UK, increasing their investment perhaps in the UK, they would probably put that on hold until they knew what the relationship between the UK and the EU was going to be, particularly if their investment in the UK was partly dependent on exports to the rest of Europe. So, I think the idea that nothing would change for two years, I think you’re wrong there.

Then of course the question is, what actually happens? What actually would the deal be at the end of those two years? And it’s a bit difficult to know what the deal would be. You know, there are several models out there. There’s the Norwegian, there’s the Swiss model.

Merryn: Well, we don’t really want the Norwegian model, do we, because then we have all the down sides and none of the up sides. You get to pay all the money, you get to deal with all the regulations, but you don’t get a seat at the table. So, not crazy for that one.

Hugo: Well, I’m certainly not crazy for that one, and I don’t think that the British people would be crazy for that one, particularly if you think that one of the reasons why the British people would’ve voted for coming out is because they don’t want free movement of people, if you think that’s going to be the most salient issue in the campaign, the Norwegians actually have got to provide free movement of people within the EU.

Merryn: Because that’s the deal that they made on the side with the EU?

Hugo: Well, that is the deal that they have as part of what’s called the EEA, which they’re part of, the European Economic Area, which is an outer ring outside the EU, which is what Norway is part of. But what Norway do get, which is important, is that they get almost complete access to the single market.

Merryn: When you say, almost…?

Hugo: They’re not part of the agricultural arrangements, they’re not part of the fisheries arrangements.

Merryn: That’s rather good, isn’t it?

Hugo: Well, it is and it isn’t. As far as fisheries are concerned, of course, they quite liked not being part of the fisheries arrangements, but it also means that there was a time when they were trying to export fish to the EU and the EU slapped anti-dumping duties on Norwegian salmon, for example. The other thing that…

Merryn: Well, to be fair, they were dumping salmon.

Hugo: They probably were, but I think that for us fisheries is a fairly small thing. As far as agriculture is concerned, I think for us actually it would matter if we were not able to export our agricultural product to the EU without facing a tariff. The tariff duties, the import taxes that the EU imposes on agricultural produce from outside the EU – I don’t have the numbers, but I think it’s something in the 15% range. So, that would be quite damaging for our agriculture. You could say, well we wouldn’t have to be part of this ghastly Common Agricultural Policy…

Norway is the country with most access to the single market without being in the EU, but they have to pay for it. It’s about 80% or 90% per head of what we pay but they don’t get to sit around the table, and they don’t get to make the rules

Merryn: Oh, I was going to say that. Wouldn’t that be great? All those distorting subsidies and market-destroying mechanisms gone in one fell swoop.

Hugo: It would be in theory, but in practice is that actually likely to happen? I mean, my fear is that if we left, the farmers’ lobby here wouldn’t go away, they’d immediately demand a similar set of subsidies from our own government and they’d probably get them.

Merryn: Wouldn’t we notice there aren’t very many of them maybe? They could lobby away.

Hugo: Well, we could ignore them and it would be interesting to see what the battle would be, but I think that what you’d have is a huge pressure to replicate the subsidies and you’d have the problem that our farmers wouldn’t have access for their produce to the EU market without this tariff. So, the tariff would effectively mean that they were uncompetitive. But these are fairly minor things.

As we said, Norway is the country that’s got the most access to the single market without being in the EU, but they still have to pay for access. It’s about 80% or 90% per head as much as what we pay in terms of our contribution to the budget and they don’t get to sit around the table and they don’t therefore get to make the rules. Now, people don’t like some of the rules of the EU…

Merryn: But we barely get to make any of the rules. We’re outvoted all the time, aren’t we?

Hugo: We’re not outvoted all the time. That’s a complete myth.

Merryn: I mean, there’s such a huge number of members now.

Hugo: That’s a myth.

Merryn: Is it?

Hugo: Yes.

Merryn: Go on then, debunk it for me.

Hugo: OK, there are 28 countries, but we are the second largest equal with France. The voting in the council of ministers is based on population. We get 12.6% of the votes. OK, that’s not a majority, we don’t have a veto power, but we are pretty influential in terms of what we want to do.

When you look at particular industries, take the most important industry, finance. MoneyWeek, the industry that you spend all your time enmeshed in, there’s only one significant thing that we’ve been outvoted on, which is bankers’ bonuses. This cap on bankers’ bonuses saying that they can’t be more than once or twice salaries, depending on whether you have a shareholder vote or whatever it is.

That’s the only thing that we’ve been outvoted on in our most important industry. If we were not at the table when the financial regulations are being determined but we still had to follow those financial regulations, which is what Norway has to do, our most important industry would be at a severe disadvantage.

Merryn: OK, what if it was a nice thing if we didn’t have that as our most important industry anymore?

Hugo: Well, that’s a good way of destroying quite a lot of livelihoods and wealth, to destroy the financial services industry. I mean, if you want to do that, good luck to you.

Merryn: And if the financial services industry here continued to follow all the same regulations, and we can easily do that, one of the… if we leave the EU…

Hugo: But if those regulations are set by the EU and we have to follow them, the chance that they’re going to be set in such a way…

Merryn: As to be detrimental to our industry is very high.

Hugo: …has gone up. We at least have a chance to stop them. In most cases we have. In only one significant case we’ve lost out.

Most of the things that have come out from Brussels over the last few decades on financial regulation have had a very significant British imprint on them

Merryn: When you say that we have, we’ve negotiated and compromised and accepted.

Hugo: Yes, but we often led the debate actually on financial regulation. Most of the things that have come out from Brussels over the last few decades on financial regulation have had a very significant British imprint on them, whether it’s increasing the capital that banks have got to take or leading to better consumer protections.

A whole raft of different things that have been coming through, Britain has had an influential role, first directly through its influence in Brussels and indirectly through international standards bodies, such as the [unclear] committee etc, which are then brought back into the EU.

Merryn: There does still seem to be an enormous amount of regulation coming through in the financial arena that I’m not entirely convinced that the financial industry is happy to sign up to.

Hugo: Well, the financial industry won’t be happy with more.

Merryn: If you look at, for example, [unclear] two on its way through and you’ve got all this kind of thing, it’s pretty endless, and if you work inside the financial industry and you’ll know this of course, there must at some point be a hope that it will just stop. Just stop the layer upon layer upon layer and being outside while it comes with no end of difficulties.

Hugo: You seem to be arguing both sides of the case. On the one hand that it would be better for Britain to have a much, much smaller financial industry and on the other…

Merryn: No, I’m not. That was flippant. I don’t think that for a second.

Hugo: OK, well, it may be that there are some of your viewers who think that.

Merryn: No, I don’t think they do.

Hugo: Well, and then on the other hand you seem to be saying, oh we must get rid of all these regulations on this industry. Can I just come back on that?

Merryn: Yes.

The broad thrust of the financial regulation has been about making sure that if banks get into trouble that their bondholders and shareholders actually have to bear the pain, rather than the taxpayers having to bail them out

Hugo: I think the financial industry did mess up big-time and we shouldn’t forget that. It needed to be more heavily regulated. Now, I don’t agree with all the regulations that have come through, but the broad thrust of the regulation that we’ve had since Lehman Brothers, since Northern Rock, has been beneficial. It’s been about strengthening the capital of banks, it’s been about making sure that if banks get into trouble that their bondholders and shareholders actually have to bear the pain, rather than the taxpayers having to bail them out.

Now, that’s something that’s hugely advantageous and it’s very important that that’s done not just on a one country basis, because if we were regulating our industry much, much more tightly, and the rest of Europe was taking a lax approach that would put our industry at a very big competitive disadvantage.

Merryn: And if it was the other way around?

Hugo: If it was the other way around, then of course our industry would be at a competitive advantage, but when you actually see what’s happened since the financial crisis, the UK has – with the exception of bankers’ bonuses – been pushing, generally speaking, for more financial regulation than the continent, for the very good reason that we’ve got the biggest financial industry and therefore we suffer the biggest risk if it blows up. The whole British economy could’ve been destroyed if that industry had totally blown up in 2007-2008, whereas in Germany it’s a much smaller part of their economy etc.

So, therefore it’s actually in our interest to have a reasonably level playing field with a single set of regulations which Britain plays an important role in determining. If we leave the EU, either we won’t have full access to that market and in finance… I mean, there are so many different sectors of finance, but broadly speaking being a member of the EU gives us what’s called a passport to operate across the EU.

That means we can have companies that are based here in the UK that can offer their services right across the EU by being regulated in Britain. If we left the EU and we didn’t come to some special arrangement, then we wouldn’t have access to that passport. Our firms would not be able to provide those services across the EU. That would be a huge blow to British business.

Merryn: But as you say, we probably would come to that arrangement Norway-style, we just wouldn’t have input into what the regulations were. So, that’s a slight red herring.

Hugo: Now you’re saying you want Norway’s… well, no, but actually I don’t think that is a red herring.

Merryn: I’m not saying anything, Hugo, I’m simply prompting you to keep talking.

Hugo: Well, I know you’re prompting me, but you’re prompting me as if you were a Eurosceptic.

Merryn: [Unclear] offend [?].

Hugo: But I thought that you had already said that actually you didn’t want the Norwegian approach. If we were prepared to have the Norwegian approach, if we were prepared to follow all the rules of the single market without having a vote on those rules, if we were prepared to go ahead and continue having free movement of people, yes, what you say is true.

But that would be, in my view, a very, very second rate position, because you would have these rules that would be set not with our interests at heart. They might even be set deliberately to do down the City. There are lots of people in France who would love to try to fix the regulations in such a way that the City is disadvantaged.

Merryn: My goodness, what a mean thing to do!

Hugo: What a mean thing to do, but that’s the reality.

The EU imposes a 10% tariff on automotive imports. 10% tax in the car industry is a huge difference. That would essentially wipe out the profit margins and more of the car industry here

Merryn: Who would’ve known those Europeans could be so nasty?

Hugo: Well, everybody can be nasty, can’t they? Even Brits sometimes can be nasty. The other thing though is that if you don’t go for the Norwegian example there is no other country that has a free trade agreement with the EU that has got such a passport for financial services.

The Swiss don’t have it, the Canadians… which is probably the most extensive free trade agreement we have with any country outside the EU, don’t have it… outside Europe, don’t have it. The Americans… well, Europe doesn’t yet have a free trade agreement with America, but as part of this negotiation with America that doesn’t give their financial firms a passport to operate within the EU. They can only operate if you’re Goldman Sachs or Morgan Stanley.

You can only provide those services across the EU when you’re located within the EU. That’s why a lot of them locate themselves in London.

Merryn: Or in Ireland.

Hugo: Or in Ireland or wherever. That’s why a lot of Swiss banks locate themselves in London. They can’t do the business out of Switzerland. So, I think this is the economic argument and equally it’s not just finance. I mean, it’s also, say, automotives. I mean, 30 years ago we would’ve thought the car industry was a bad joke in the UK, with British Leyland, etc etc, but there’s been a massive revival, largely on the basis of foreign investment into the UK. The Nissans, the General Motors.

Merryn: And you think none of that would’ve happened if we weren’t a member of the EU?

Hugo: No, I’m not absolutist about it. I don’t say, none of this would’ve happened. I don’t say that if we leave the EU we’re going to lose all of our trade with the EU. I mean, often Eurosceptics try to paint the position of people like me as so extreme. It’s not a matter of black and white, it’s a matter of different fifty shades of grey and we wold lose some access if we just relied on the World Trade Organisation. Often you find the campaigning organisations like Vote Leave, or Nigel Lawson, for example, saying we should rely on our membership of the World Trade Organisation and that’s what’s going to give us this fantastic access.

Merryn: And you don’t think that will be enough?

Hugo: Well, if we rely on our World Trade Organisation, let’s take that on face value, the automotive industry… the EU imposes a 10% tariff on automotive imports. So, cars that we would export to the EU would face a 10% tax. 10% tax in the car industry is a huge difference. That would essentially wipe out the profit margins and more of the car industry here. What would happen then, is that any new investment that these car companies were making in the UK they would probably shift to a location the other side of the Channel.

Merryn: And you don’t think that could be negotiated away?

If we’re prepared to pay into the budget, if we’re prepared to have free movement of people, and if we’re prepared to abide by the regulations, we’re much better off staying in the EU and actually having a say over those regulations

Hugo: Well, I think it could be negotiated, but what are we prepared to do? Are we prepared to accept free movement of people, are we prepared to accept their regulations, are we prepared to pay into their budget? If we’re prepared to do all those three things, I think we can get around all of these problems, but if we’re prepared to pay into their budget, if we’re prepared to have free movement of people and if we’re prepared to abide by their regulations we’re much better off staying in and actually having a say over those regulations.

Merryn: Now, free movement of people does seem like it’s going to be something of a sticking point here, doesn’t it? And this does seem to be the thing people care about with good reason, obviously more than anything else. The protection of borders, and if you look back at the history of the EU so far, you know, it’s faced, what, two major crises really. The financial crisis and the current migration crisis, and someone sitting in the UK could say, well, this hasn’t gone that well and the free movement of people is beginning to be something of a problem.

Hugo: OK, but I think you have smooshed two issues together.

Merryn: Do you think?

Hugo: And it’s very important to distinguish these things. There’s the free movement of people within the EU, and there is the migration crisis that is about refugees from outside the EU.

Merryn: Ah yes, but you’re separating them when perhaps they are the same thing in that once refugees have moved into Europe and once they’ve, you know, become settled, claimed asylum etc, and once they become a resident in one of these countries then they do have free movement in the other countries. So, you can say they’re different things, but in the end they’re the same things.

Hugo: Well…

Merryn: And you know people seeking asylum inside Europe can then move around inside Europe.

Hugo: They can’t…

Merryn: Not initially.

Someone who gets asylum inside Europe doesn’t have the free movement of people until they become an EU citizen, which may never happen

Hugo: Someone who gets asylum inside Europe doesn’t have the free movement of people until they become an EU citizen, which may never happen but which may happen several years later. I do think it’s very important to distinguish these two things, and also you have to think how many people are going to be coming in. How many people are going to be coming in?

OK, so maybe there are a million people who are going to come in this year, maybe another million people, say there are five million people that come in over the next five years. I don’t know, let’s take that as an example. That’s five million more people who would have free movement within the EU, on top of the 500 million who are already there. It’s not likely to move the needle a huge amount in terms of the free movement of people. I do think therefore it’s important to distinguish the two, and as far as the refugee crisis is concerned Britain is largely insulated from it.

People who come in as refugees, as asylum seekers, who come from Syria, who cross into Turkey, who come into Greece, they then go up through the Balkans. They then are inside what’s known as the Schengen Area, but Britain is not part of the Schengen Area. When you talk about… you talk about how there are no borders, or no borders within Europe etc, there are no borders within the Schengen Area, but there is a border between Britain and the Schengen Area. Last time you arrived at Heathrow, did you have to show your passport? Yes. There’s a border control. It’s actually this thing that says Border Force…

Merryn: But there are now border controls going up across Europe as well, and Schengen is beginning to fail.

Hugo: Yes, but we’re not part of Schengen. That’s irrelevant for us. We have the best of both worlds. We’re in the EU, but we’re not part of Schengen.

You also mentioned about the euro crisis, which indeed is a disaster for the countries in the eurozone, but we’re not part of the single currency. We’re in the EU, but not in the euro. We have the best of both worlds.

They clearly have problems within the eurozone and they clearly have problems within Schengen. We are not part of either of those situations

Merryn: That’s true. Absolutely, but all these crises they change the way Europe operates and every time there’s a crisis and there’s a new deal of some kind and it talks about a new treaty, you move a little bit further… I’m simply setting the other case here, you move further towards European integration, towards more power at the centre, towards more bureaucracy etc, and that’s one of the things that people who are keen on the UK leaving look at and go, well, hang on, it’s a continent in crisis, it’s a continent trying to deal with that crisis by becoming more and more integrated and maybe as that crisis develops it’s something we don’t particularly want to be attached to.

Hugo: Clearly they do have problems within the eurozone and they clearly have problems within Schengen. We are not part of either of those situations and there has been a little bit of extra integration in the eurozone to deal with the crisis, but it’s an integration that’s not affected the UK.

For example, the two most important things they agreed within the eurozone, were that the European Central Bank should act as the supervisor for banks within their banking union. But Britain’s not part of the banking union, so that integration does not affect us. Secondly, the other thing they agreed was setting up something called the European Stability Mechanism, which is a €500 billion… I think it’s €500 billion… fund, to bail out countries that have got trouble, but Britain is not part of the European Stability Mechanism.

So, again what you’ve seen is some integration, but it’s not integration that has affected the UK.

Merryn: No, it doesn’t affect us, but I think there’s a sense that at some point it will. You know, let’s say that the debt crisis returns to hit Italy, to hit France, whatever, and everyone needs to pull together to keep the show on the road, does England stand fully aside from that? Does Britain stand fully aside from that? Do we have no responsibility to it as part of the European Union?

Hugo: We don’t, because we’re not part of the eurozone and we shouldn’t, and we won’t. OK, so let’s look at the refugee crisis. What have we agreed? And then somewhat separate from the refugee crisis, but certainly somewhat linked to it is the terrorists who have been able to take advantage of Schengen’s leaky borders to come across. Like Abdelhamid Abaaoud who was coming from Syria was the mastermind of the Paris attacks. What is the European Union doing as a result of that?

Well, the main thing they’re doing is trying to tighten up Schengen’s borders, but that’s not anything that affects us, except that we have decided of our own free will… I think we’ve got a frigate in the Mediterranean which is taking part in this  rescue operation of people who may be drowning in the Mediterranean and helping to police the borders a bit, but again if they decide to reinforce their frontier, the frontier between, say, Greece and Turkey, that’s not a bad thing for us. It’s slightly a good thing for us actually, but it’s not our main beef.

But again, we actually have a best of both worlds situation there, because we are a member of what’s called the Dublin Regulation, and the Dublin Regulation says simply that if an asylum seeker arrives in the EU it has to be processed by the country where that person arrives, and if that person then goes to another EU country, that EU country can send that asylum seeker back to the first port of entry. Britain is part of that arrangement. We benefit from it. We’ve sent back about 12,000 asylum seekers since 2003.

Merryn: Because we’re rarely the first port of entry.

Hugo: We’re rarely the first port of entry. People actually find it quite difficult to get here. People say, oh my god, there are all these people in Calais. Well, why are they in Calais? They’re in Calais because they can’t get to the UK. It’s quite difficult, because we’ve got a Channel and we’ve got border force etc etc.

Merryn: So why do they stay in Calais?

Hugo: Well, I haven’t been to Calais but I think one of the reasons they stay in Calais is because they’re hoping that there may be a way of getting in.

Merryn: Why, what’s wrong with France?

Hugo: Well, there’s nothing particularly wrong with France, but as you know Britain has got a much better growing economy at the moment. Our economy is about the same size, we’re about as rich as the French but we have a more flexible market-oriented economy. We’re better at creating jobs at the moment, we’ve got lower unemployment…

Merryn: So, it’s worth sitting in a nasty camp in Calais for six months in the desperate effort that you can jump onto the side of a speeding train to make it to London?

Hugo: I don’t know actually, I haven’t…

Merryn: It seems kind of bonkers.

Hugo: I haven’t been there. I haven’t asked people why they don’t want to go to Germany. Maybe some of these people have got friends and family here, I don’t know. There may be individual circumstances that make it more attractive for them to come here.

Merryn: OK, let’s look briefly at free movement inside the eurozone. You know, I suspect…

Hugo: Inside the EU, I think.

It’s nice to have sovereignty, but also sometimes you have to make compromises if you actually want to achieve more in life

Merryn: Sorry, inside the EU, yes. An awful lot of people are going to look at this business of David Cameron promising to do something about in-work benefits [unclear] can claim for four years and now backing away from that, because obviously it’s not going to be allowed.

Why would the Polish put up with that? People are going to look at that and say, well, hang on, if we want to restrict access to our own benefits in our own country and we’re not allowed to do that by the EU, this sort of backs up the idea that our sovereignty is somehow being chipped away at by a super-national organisation above us, and that doesn’t seem quite right. I mean, that looks like it’s going to be one of the problems for David Cameron going into the referendum, right?

Because he said he wanted to do a couple of very specific things, but a super-national organisation is saying, well, you can’t do that stuff, and that brings you back to everything that Vote Leave etc say, which is, this is a matter of sovereignty, it’s not a matter of trade or the financial industry or regulations here or regulations there, it’s a matter of being able to control your own borders, your own finances, your own ideas about who should receive what benefits, when, how, who should live where etc. That’s quite a big deal.

Hugo: Well, I don’t think the four year in-work benefits is a big deal, but I think that the principle you’re talking about…

Merryn: That’s what I mean. Forget the thing.

Hugo: The principle you’re talking about is an important principle, but I think that you need to put it in context and my argument would be that, yes, it’s nice to have sovereignty, but also sometimes you have to make compromises if you actually want to achieve more in life.

Merryn: They’re big compromises, aren’t they?

Hugo: I don’t know, if you want to have a single market you’ve got to have a single set of rules. If it’s going to be a single set of rules, it’s not going to be rules that Britain gets to dictate, or France gets to dictate, or Germany gets to dictate, they all have to agree to some extent.

So, what you do is in order to actually achieve more you have to reach a deal, and a deal almost always involves a compromise, and then the question is, do you get more out of this than you lose? And if you say, we must always have exact sovereignty on absolutely everything we do and we must never agree to anything that another country wants us to do…

Merryn: I doubt anybody would say that, but go back to in-work benefits.

Hugo: You wouldn’t be part of Nato, for example. Nato is a very important thing. Much more important than in-work benefits.

Merryn: That’s a detail. That’s exactly my point.

Hugo: As part of Nato, if somebody invades Turkey, for example…

Merryn: See, you can’t argue with Hugo, because he just talks over you anyway. That’s why we’re not having a debate.

Hugo: You can come back at me, but I think the Nato thing is important. Nato sovereignship involves a loss of sovereignty. Do you agree?

Merryn: Of course.

Hugo: Then the question is, do we benefit from that or not? I would say we do benefit from that. Some people might say we don’t benefit, but you can judge it. So, it’s a matter of principle, the membership of the EU does involve some loss of sovereignty. My contention is that we benefit more from it than we lose. Sorry.

Merryn: Well, I suppose I would say in response to that, you’re absolutely right about Nato and loss of sovereignty for these huge big things is something that I think people are more prepared to put up with than little things, and you say in-work benefits are not particularly important, it’s just minor. Well, that’s the important thing. It’s minor. We can’t make minor decisions for ourselves. We have these imposed upon us. Now, let me tell you about a very, very minor decision. I wrote about this in the Editor’s Letter in MoneyWeek a little while ago and everyone thinks I’m an idiot, but it matters to me.

I always wanted to have a red Aga, always. My granny had a red Aga. So, when we re-did our kitchen recently I though, I’m going to get an Aga and I said, can I have a red electric Aga please? No, no you can’t. You can’t, because there is a chemical used in the production of the red paint used on iron electrical appliances that is no longer allowed under the renewable regulations. Everything has to be fully recycled and you can’t recycle this tiny trace of chemical in the red paint used by Aga. So, you can buy a red electric Aga in America, but you can’t buy one in the UK.

That is so minor, it’s so minor, but damn it’s irritating, and it’s that kind of little detail of loss of sovereignty in what benefits a slightly bigger deal than my red Aga. It’s these things that people say, well, I don’t mind giving up sovereignty for national security, I don’t mind giving up some sovereignty for trade unions and agreements, but hang on a tick. I really mind giving up sovereignty when I can’t have my government decide who gets benefits and who doesn’t.

When I can’t have my government decide what colour electrical appliance I can have in my kitchen to match my toaster, and all this kind of thing. That becomes, I think, an issue of sovereignty. It is not so much the big stuff as the detail.

Hugo: Well, I think it’s a mixture of all of them honestly and I think on each of them you have to effectively look at the benefits and look at the costs and you have to have a trade-off. I don’t know the detail about the red Aga. I don’t know who actually came up with the argument. Do you know whose idea it was to do this?

Merryn: I mean, it’s not aimed at Aga, it’s aimed at electrical appliances having to be recycled.

Hugo: But you might find that this is something that the British government thought quite a good thing to do too.

Merryn: Well, maybe so.

Hugo: There was a famous case of the lawnmower…

Merryn: And we’re very keen on regulations ourselves, right?

Hugo: Yes, we are and that’s why I think it’s important when you look at a regulation you have to go into the depth of it. But there’s an interesting case – I think it was about a decade ago or so – called the lawnmower directive, and there was this directive that came out of Brussels saying that no lawnmower may have more than so much noise coming out of it.

Merryn: Turned out to be Tony Blair’s idea.

Hugo: It turned out to be the British, and the reason why was because you had different noise limits in different countries and the Germans had set the noise limit at a particularly low level which meant that British lawnmowers couldn’t actually be sold into Germany. So, what we did is we lobbied to get a common level of noise…

Merryn: Higher.

Hugo: Which was higher… high enough so that British lawnmowers could actually get into the German market

Merryn: Right, so German suburbia has been in crisis ever since.

Hugo: Yes, there’s a lot of noise.

Merryn: OK, have we covered our three things?

Hugo: No, we haven’t. We didn’t cover our third thing at all. The third thing was all of the non-economic issues, whether it’s things like…

Merryn: Yes, but security I’m slightly dismissing, because I refuse to believe for a second that we wouldn’t continue to cooperate with them, the European Union, on security, because it’s simply too important not too. There’s no way Europe wouldn’t want to coordinate with us, no way we wouldn’t coordinate with them, so I’m simply dismissing that.

Hugo: Well, I don’t think you should dismiss it.

Merryn: OK, go on then.

Hugo: Because I think in security there is always a balance between security and protection of civil liberties. At the moment we’re cooperating with the EU on security, things like Europol, which actually is run by a Brit for example, but also this thing about the passenger records.

So, there’s this idea that we should keep access of people’s passenger records – aircraft travel etc – and then you can go through all these passenger records and use clever computer algorithms to spot unusual travel plans and then perhaps spot someone who might be a terrorist.

Now, some people think that’s a huge intrusion of civil liberty. Other people say, well, we need to do this because we’ve got jihadis who are on the rampage. The point to this is that at the moment we are at the table. We decide where that balance is struck. If we left the EU…

If we left the EU, the EU would say “of course we can cooperate with you on security. But this is what we’re going to do. You cooperate with us, but you have to follow the rules, and we’re setting the rules”.

Merryn: What do you think? Do you think that’s an infringement of civil liberty as an aside?

Hugo: I think it is an infringement, but I think it’s a necessary infringement. Or it’s proportionate to the need. That’s my view, and I’m not absolutist about these things.

I think you have to be pragmatic, and my view therefore is that if we left the EU, the EU would say, of course we can cooperate with you on security, but this is the passenger records directive, this is what we’re going to do with Europol etc, you cooperate with us, but you have to follow the rules and we’re setting the rules.

So, it would be exactly the same as in economics. If we wanted to cooperate, we could cooperate, but we then would have no view on what the rules were.

Merryn: OK. Not convinced, but…

Hugo: We could tag along. They’d say, yes, you can tag along, but they would be 27 countries, collectively they would be whatever it is, five or six times the population… six or seven times the population of Britain, they would have greater weight.

Merryn: Now, the next bit you mentioned, there was security and this non-economic bit, there was… what else was there?

Hugo: Security, there’s foreign policy, there’s environmental policy. Climate change.

Merryn: Climate change. Why does that matter?

Hugo: Why does climate change matter?

Merryn: No, not why does climate change matter.

Hugo: I don’t know, maybe there are lots of people… like lots of Eurosceptics are climate change deniers.

Merryn: Well, it doesn’t really matter whether climate change [unclear] or not, does it?

Hugo: The two Nigels, Nigel Farage and Nigel Lawson, are climate change deniers.

Merryn: It doesn’t really matter for the purposes of this because the juggernaut is rolling, so whether you’re a denier or not the regulations are still happening, but why do you need to be a member of the EU to deal with climate change? Make your own decisions about how you might or might not cut emissions.

Hugo: What you need to do is… the EU was one of the most significant players in these climate change discussions we just had in Paris. There are basically three big players. The EU, the US and China. By acting together as the EU, which we’ve done already, it meant that we were able to have an influence on the ultimate successful conclusion of these talks of this summit earlier this week. If Britain had been on its own, I don’t think anyone would listen to what we had to say.

Merryn: And would that have made the talk more successful or less successful? What difference would it have made?

Hugo: It would’ve meant that our input would’ve been irrelevant.

Merryn: And what was our input that made a difference. I mean, everyone at these talks is heading in the same direction, right? Everyone apparently wants the same thing, so what difference whether the UK has much to say on it or not… we’re getting a little caught up in ourselves here, aren’t we?

Hugo: No, well, we are a little bit and I’m not an expert on this, but my understanding is that what happened is that the EU made an offer to these climate change talks, which is that we are going to do x, y and z about our targets for carbon emissions over such and such a period of time, or whatever it was. Something like that. We made an offer. That offer itself was then the result of a series of discussions within the EU, in particular the next set of targets. We’ve got some targets up to 2020 and now there are some new targets beyond 2020. I think they go up to 2030, I’m not quite sure.

But an important part of those new targets was that Britain actually asked for a more flexible way of hitting targets than had been the case up to 2020 where there had been a lot of stress on, you actually have to do x, y, and z in terms of renewables. Now there are still targets on renewables, but they’re not really important. The really important target is cutting emissions and how you actually get to cutting the emissions is what matters.

Merryn: So, that’s the difference? That we had an influence on that?

Hugo: Like I say, I’m not an expert on this area, but my understanding is that that change is something that Britain pushed for and achieved sometime earlier in the year, I think, in the springtime.

Merryn: To add in to the EU’s negotiating position as a whole.

Hugo: Yes, as part of the EU’s own policy, which in turn was a key building block of this global discussion, and the idea that Britain on its own would’ve had any significant influence I think is very limited.

Merryn: On its own maybe then Britain wouldn’t have had to sign up to the deal.

Hugo: Ah, well that I think would not have been the case, because I think the peer pressure if you’re not involved in something as important as the climate change talks… if we had said, no, we don’t want to have anything to do with this..

Merryn: Peer pressure? Prime ministers suffer from peer pressure?

Hugo: Yes. Countries suffer.

Merryn: Hugo, we’re going to have to leave it there, but we will come back to this. Thank you very, very much and Hugo’s book on the subject should you want to know more of his views. Thank you.

Hugo: Thank you, Merryn.