Cover of MoneyWeek magazine issue no 798, Friday 17 June 2016

How risky is Brexit?

16 June 2016 / Issue 798

There are risks on both sides, but the jittery narrative about a post-Brexit Britain contains hidden assumptions that don’t bear scrutiny, says John Stepek. Read this week's cover story here.

• Britain’s new favourite retailer
• A fine-dining holiday in Budapest
• The family divided by Europe

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Podcast: what could happen if we vote to leave

John and Merryn discuss the EU referendum, the likelihood of Britain actually leaving the EU, and whether it will be better or worse off if it does.

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

Brexit could be just what the EU needs

Six of the eight opinion polls released in the last week suggest the UK will vote for Brexit. The number of “don’t knows” has fallen – and most appear to have turned into Leave voters. That’s making this week a tense and unpleasant one for those convinced that the world as they know it will collapse on a vote for Brexit. But are they more hysterical than this really merits?

I think they might be. Firstly, the odds of Leave winning are a lot lower than they seem, as those who had a ringside seat at the Scottish independence referendum will know. Then too, everyone was semi-hysterical about a group of polls suggesting the result was too close to call. It turned out to be nothing of the sort: the status quo has a history of being the big winner in referendums and it brought home a pretty decisive victory in Scotland too. It is still part of the UK and it is staying part of the UK.

But the hysteria is also overdone because, even in the event of a Brexit win, the world won’t actually end. Instead, as John Stepek notes in our cover story and Matthew Lynn points out in this week’s issue, when the dust clears we will see that nothing much has changed: the UK economy will be “much where it was before with the same strengths and weaknesses”. There will be no obvious reason for it to implode or for equities suddenly to be 20%-30% cheaper.

That’s particularly the case given that there are so many possible models for the UK to think about, following Brexit. At MoneyWeek, we are pretty keen on the Swiss model: this would give us back control over everything from justice to agriculture, while also giving us access to the single market to the extent that we adopted its regulations.

We’d pay an entrance fee, of course (Iceland, Norway and Switzerland all pay to access the European Free Trade Area), but nowhere near as much as we pay now, and we would be able to make our own trade deals outside the EU. Free trade and national sovereignty – sounds a winning combination (see my blog for more).*

But these aren’t the only reasons why Remainers mustn’t panic. The final thing to note is that there is a very good chance that voting Brexit won’t actually mean Brexit. Our MPs are overwhelmingly pro-Remain and the referendum is not legally binding. Will they invoke Article 50 straight after the result is out?

Will they say that low turnout (or something similar) means the referendum is not a good enough mandate for change? Or will they send Mr Cameron off to Europe to have a go at forcing genuine reform, then offer us another referendum? I suspect they will do the latter – as they are legally entitled to. I will disapprove. But it might not be all bad. After all, most people in the UK want roughly the same thing – a fairly loose, flexible relationship with a group of like-minded neighbours (a very dramatically reformed EU). They just disagree on how to get it. A vote for Brexit might well be the answer.

* There is also a great explanation of this here.