Hugo Dixon: Compromise is inevitable – so let’s stay in the EU

The economy, foreign policy, Scotland – for all its faults, these provide reason enough to stick with Europe. Merryn Somerset Webb talks to financial writer Hugo Dixon.


Hugo Dixon: The European Union is a price worth paying

The economy, foreign policy, Scotland for all its faults, these provide reason enough to stick with Europe, says Hugo Dixon.

Hugo Dixon is very clever.He is an excellent analyst. And he thinks the UK should stay inthe European Union.To most of us in the MoneyWeek office, that makes him seem mildly eccentric (see Charlie Morris's article on why he thinks Brexit makes perfect sense). So we asked him in to tell us all about it.

We skip the small talk. Top three reasons to stay, I ask. The first is the economy, he says. "If we leave the EU we will struggle to have access to the single market, which accounts for half our trade."

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

We'd "also struggle to have as much influence on a whole series of other political foreign-policy issues that concern us, such as cross-border crime, terrorism, climate change, etc". Finally, Scotland. If we pull out of the EU, says Dixon, the Scots will "almost certainly have a second referendum on quitting the UK, and they probably will quit". If, then, you think the UK is stronger with than without Scotland, you have to vote to stay in.

Does Brexit spell the death of the UK?

We decide to take Scotland first on the basis that it seems to me to be the least compelling of the arguments. It may be that Scotland votes in and the rest of the UK votes out. But that doesn't mean it's a given that a new independence referendum would be called (the fast-falling oil price makes it a tough call for the SNP), nor that it would end up with a vote to leave the UK. Why? Because there is no way Scotland could leave the UK before the UK left the EU (timings would be too tight), so Scotland would then be a small nation attached to neither the UK nor the EU, but applying to join the EU. And that's as nuts as it sounds.

Dixon reckons there would definitely be another referendum he also reckons there is "buyers' remorse" up north and that given another chance the majority would vote to leave the UK. I reckon that given another chance they'd vote for the status quo again. But as neither of us can be sure about this we move on to the wider (and more quantifiable issues) of the economic aspects of Brexit.

Trade and the single market

We would, says Dixon, "struggle to get as good access to the single market if we left the EU". Not in terms of immediate day-to-day trading, but in terms of investment: firms would put investing 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". And we have no idea what the deal with the EU would end up being at the end of the (probably) two-year negotiation period.

Dixon doesn't think the British would be "crazy for" the Norwegian model. They get almost complete access to the single market as part of the European Economic Area (EEA). That's good. However, they also pay a lot in ("80%-90% per head" of what we pay), have to abide by EU regulations, and provide free movement of people within the EU all without actually getting a seat at the table.

Given how often we are outvoted on things (we get around 10% of the voting weight inside the EU), I say, what good is a seat at the table? It is, says Dixon,"a myth" that we don't get our ownway in the EU very often. The only "significant thing" we have beenoutvoted on in finance "our most important industry" for example, is the cap on bankers' bonuses. But haven'twe ended up compromising on other things? Perhaps, but if we weren't inthe EU we wouldn't "get a chance to stop" regulations we don't like or to "lead the debate" a lot of the new regulations have a very "British imprint" on them, says Dixon.

Protecting the banks

What of the complaints from financial businesses in the UK that it isn't just the type of regulation that hurts them, it's the sheer volume of it? Talk to a bank director and you will hear of nothing but the crates of compliance papers they have to wade through. We shouldn't forget, says Dixon, that "the financial industry did mess up big-time 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 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 taxpayers having to bail them out. That's something that's hugely advantageous, but it's very important that it's not done 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."

Hmm. What if it was the other way around? "Then of course our industry would be at a competitive advantage, but 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 wholeBritish economy could've been destroyed if that industry had totally blown up in 2007, 2008."

Being in also means we are part of the EU financial passporting system: companies based in the UK can offer their services right across the EU while still being regulated in Britain. "If we left the EU and didn't come to a special arrangement, then we wouldn't have access to that passport that would be a huge blow to British business." But we would come to an arrangement, surely? That's what the negotiation period is for. Only if we agreed to a Norwegian-style model,says Dixon. Then imagine how much fun the French would have fixing the regulation "in such a way that the Cityis disadvantaged".

The best of both worlds?

And this isn't just about finance. Look at the car industry 30 years ago it was a "bad joke" in the UK. Now there has been a "massive revival". Does he really think that is down to the EU alone?"It's not a matter of black and white." But being in the EU is a lot better for our trade than just being in, say, the World Trade Organisation (WTO) something many people think is enough. Note that the EU imposes a 10% tariff on car imports that "would wipe out the profit margins on most of the car industry here". Surely a deal could be done over that too, I ask. That brings us back to Norway. Only if we pay in and abide by all the regulations we will no longer have a say in making, says Dixon. There is no best of both worlds in this case.

We move on from the free movement of goods to the free movement of people. When we talked a few weeks ago, this looked to me like it might be the thing that took the EU to the brink anyway. Since then things have got worse with new borders popping up all over the continent and Schengen looking about as dead as a deal can get.

Dixon reckons it is very important to distinguish between the free movement of people inside Europe and the refugee crisis: the UK isn't part of Schengen so they are separate issues. I'm not convinced: after all, once refugees become citizens they can technically move around Europe too, so in the end not being in Schengen is a short-term barrier to immigration only.Either way, Dixon isn't bothered.

"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 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."

He doesn't think we should worry too much about the eurozone financial crisis either: "we're in the EU, but not in the euro. We have the best of both worlds." We do for now, I say. But every time there's a crisis, Europe attempts to integrate more. As part of the EU, will we really be able to hang back from that financially and politically? Dixon reckons yes. We haven't had to be part of the eurozone banking union or of the European Stability Mechanism.

An inevitable loss of sovereignty

We're running out of time at this point, so I move Dixon on to the thing that I think most matters to MoneyWeek readers sovereignty. When we look at the row over benefits to economic migrants, for example, it isn't the question of whether a newly arrived Pole should have to wait two or four years for tax credits that bothers us. It is the fact that our prime minister has to ask other governments before he is able to make what is really quite a minor change to our own welfare state. Isn't that a problem?"Sometimes you have to make compromises if you actually want to achieve more in life," says Dixon.

On everything? It seems to me that we are mostly happy to compromise on very big things to be part of Nato, for example. But on the smaller things the ones that directly affect day-to-day life people need to feel they have some national control. Dixon sees that. But hereckons it's just the price we have topay. Yes, he says, "membership of the EU does involve some loss of sovereignty, but my contention is that we benefit more from it than we lose".

Who is Hugo Dixon?

Hugo Dixon, 52, has worked as a financial writer for morethan 30 years. He was educated at Eton and read PPE atBalliol College, Oxford. After taking up an internship atThe Economist in 1985, he joined the Financial Times ayear later as junior banking correspondent. In 1987 hewas seconded to work as chief policy adviser to RobertMaclennan, then leader of the Social Democratic Party.

He stayed at the FT for 13 years, editing the Lex columnfor five of those, before leaving to co-found financial commentary in 1999, which was sold to Reuters for more than £12m in 2009.He remained as global editor until 2012, and today still writes a regular column forReuters BreakingViews and The International New York Times. He has also writtenseveral books, including The Penguin Guide To Finance and The In/Out Question:Why Britain Should Stay In The EU And Fight to Make It Better.

This was a long interview the above only covers some of it. Do watch the rest online.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.