Leasehold scandal: Practical proposals to end the great leasehold rip-off

leasehold

Christopher Howarth: Submission to the Commons’ select Committee on Leasehold reform

Background:
Prior to 1993, the owners of flats had virtually no rights. They could not extend their leases, nor could they collectively buy out their landlord: they had an asset with an expiry date and one they had little control over. John Major took the first step to rebalance this system, introducing rights to lease extensions and collective enfranchisement, now if 50% leaseholders in a block could agree to buy out the landlord, they can.

Nearly a quarter of a century later, leasehold is in rude health. There are perhaps four million leasehold properties in the UK. 70% of them are flats, and 57% are owner-occupied. In large areas of the country, for those lucky enough to afford it, owning a leasehold flat is the closest they can come to owning their own property.

Some flats are in blocks which now come with a share of freehold, many are not. For these “homeowners”, being a leaseholder is little more than being a glorified tenant, with little influence over their property’s management or with any legal redress against spiralling costs and bad, or even corrupt, landowners and managing agents.

Yet while in the UK the idea of leaseholders and freeholders are as ubiquitous as flat owner’s complaints about their managing agents, it is worth considering that most of the world, including other common-law jurisdictions, either have never had leasehold property, or have since got rid of it. Yet in the UK leasehold is expanding. Ninety per cent of all new properties in London are leasehold, and 40% in England and Wales). 43% of new properties sole are leasehold.[1] These new “owners” form a miserable third tier in terms of property rights, below that of freeholder and Social Housing Tenants, but above renters, who as a consolation can at lease move without paying both their estate agents and the landlords agents fees and taxes.

Preventing service charge disputes.
At present a determined landlord can manage leaseholders properties as they feel fit, releasing little information, paying no regards to costs, keeping all moneys from multiple properties in one bank account while not providing statements or even accounts. They can do all this either within the law or because they have no fear from the residential property tribunal or any other regulatory body.

Nobody wishes to see leaseholders in dispute with Landlords. The way to prevent disputes is to improve the standard of management. This requires two factors. Firstly transparency of information regarding charges and services and secondly real enforcement mechanisms so that Landlords are forced to improve their practices and thus prevent disputes.

Transparency of information:

Service charge transparency. There is no reason why a leaseholder should not see key documents relating to the management of their property – for instance, those relating to tendering of services, the management contract and other contracts, so they can provide alternative quotes. Without transparency regarding accounts, bank statements and individual statements and contracts lessees have no idea what their money has been spent on, what services have been contracted and the ability to go to the Residential Tribunal is practically worthless.

Lessees’ ability to gain redress against a fraudulent landlord is severely hampered by the ability of the Landlord to withhold information and use their control of information in the Residential Property Tribunal. With complex and partial information disclosed, a leaseholder will never be able to prove a case – a fact landlords are well aware of.

In order for Lessees to understand what they are being charged for they require some basic information that currently it is almost impossible to compel a Landlord to produce. The basic information that should be available should include.

  • Timely accounts. On large estates where agents pool expenditure items this will require disclosure of accounts of all related units to ensure there is no double charging.
  • Receipts for expenditure. These should be easily available for inspection and be timely.
  • The % split of expenditure. To ensure that lessees are not being charge collectively more than 100% of the service charge. If the landlord has their own properties on the freehold title they should also pay service charge and this payment should be transparently available in the accounts.

At present none of these items of basic pieces of information are possible to come by in the face of a determined landlord. This would severely hamper any lessee seeking redress.

The case for a ‘Leaseholders House’ to hold key account details.
Companies House hold accounts of all UK companies. There is no equivalent for service charge accounts. If a body were created that could hold all yearly service charge accounts in the form prescribed by law it would provide automatic enforcement of timely accounts.In addition to holding audited accounts the Leaseholders House should make the following information publicly available:·         Bank statements of Leaseholders service charge and sinking fund accounts.·         All LEP1 information, accounts major works. This would reduce the cost of conveyancing as sellers would not need to apply to the Landlord and pay a fee.·         All contracts so Leaseholders know what they are paying for.·         Tender documentation so Leaseholders can provide alternative quotes.·         The % payable be each leaseholder and the freeholder’s flats so leaseholders know that they are paying 100% and the Landlord is contribution.

·         Leaseholders addresses so that leaseholders can contact other leaseholders for the purpose of enfranchisement and challenging service charges without paying large sums to the Land Registry.

 

Timely accounts: Section 21 of the Landlord and Tenant Act 1985.

S.21 governs what information a Landlord should provide to the Lessees. Unfortunately it has three versions that give Lessees differing rights and it is not clear which one is current.

1. As last amended by Schedule 1 of the Housing Grants, Construction and Regeneration Act 1996

2. As proposed by Section 152 of the Commonhold and Leasehold Reform Act 2002

3. As proposed in Schedule 12 of the Housing and Regeneration Act 2008

Putting that on one side Lessees are probably entitled within 6 months of the end of the 12 month accounting period a summary of the costs incurred for the last service charge account period of 12 months. Or if not forthcoming following service of written request under S. 21 within 1 month.

In addition a qualified account is required to certify that the summary represents a fair representation of the required information and that the summary is sufficiently supported by the accounts, bank account statements and receipts and other documents presented to the accountant.[2] Currently it can be argued by Landlords that they need not disclose bank statements (of their collective accounts).

Problems with enforcement of accounts

While there are many ways a Landlord can seek to avoid disclosing information while complying with s.21 the real disadvantage to Lessees come with enforcement. This is covered by s.22 of the Landlord and Tenant Act 1985. Under section 22 the lessee is entitled to see all the documents and receipts to back up the accounts and s.25 of the Landlord and Tenant Act 1985 makes failure to comply a summary offence theoretically subject to a £2,500 fine.[3]

Unfortunately this sanction does not work in practice. The only authority able to bring prosecutions are local authorities who have no interests or resources to bring actions against landlords and since the Act specifies a sanction the Courts have bared tenants from going to Court to seek their own redress under s.21-23. The reasoning for this was set out in Morshead Mansions Ltd v Di Marco where the Court of Appeal specifically ruled that the Lessee could not go to Court to compel the Lessee to disclose accounts. And without accounts and receipts the Lessee has no chance of bringing a successful action for service charge.[4]

A lessee that suspects a Landlord is not accounting for funds have few legal remedies to gain information and a motivated Landlord can frustrate even a determined Lessee.

Parliament under the Commonhold and Leasehold Reform Act 2002, Section 153 did propose to give tenants the right to withhold service charge if accounts etc. were not forthcoming, but alas never brought that provision into force.

Proposals:

  1. Lessees (in addition to the local authorities) are given a right to go to Court to seek audited accounts and the receipts (not invoices) that underlies the accounts.
  2. S. 153 of the Commonhold and Leasehold Reform Act 2002 regarding non-payment of service charge if no accounts are produced is brought into force.
  3. Landlords must lodge all service charge accounts with a Landlords’ equivalent of Companies House that automatically places them on line for all to see and automatically fines them if they are not produced.
  4. Accounts must include every flats % payment and include the payments made by the Landlord from any freehold flats they own in the block. (They should be legally liable to pay their fair share).
  5. Lessees should be given receipts not invoices.

Service Charge Accounts and supporting documentation. Service charge accounts, sinking funds and reserve accounts often lack key information and do not set out a true picture of what Lessees are being billed. Problems include:

  • Accounts for a block do not set out who is contributing allowing the Landlord to obscure the fact that the % charged to leaseholders adds up to more than 100%. This is often the case where new flats are created in a block pushing the % contributed over 100%. In schemes running to 100s or even 1000s of properties downloading the leases from the Land Registry at £7 a property is prohibitive.
  • Landlords often justify expenditure with invoices, often from their own subsidiaries or their agents firms. Invoices are not proof of actual payment.
  • Landlords often come back months later and after the accounts have been delivered with new charges necessitating ‘balancing charges’. This obscures what is actually been spent.
  • Service charge accounts are prepared for the benefit of the Landlord relying on the Landlord’s (or agent’s) documentation. They usually include wide disclaimers reducing their value.
  • Landlords with multiple overlapping management areas and schemes need only provide small snapshots to Lessees. Landlords have no duty to explain if they contribute for their own flats or the % charged to other lessees. Landords can make it practically impossible to inspect receipts. Landlords have no fear of being take to Court by local authorities and the fines may not be a deterrent in the case of large landlords. Landlords may then place fines on the service charge!
  • Even if Leaseholder’s moneys spent is receipted it is often difficult to tell what has been commissioned without disclosure of the actual underlying contracts. For instance a management contract between the Landlord and his agent may include clauses relating to management of the Landlord’s remaining freehold properties in the block. These could include the obligation of the agent to manage them at reduced rates and to use the service charges collected for the maintenance of these flats. The Landlord is under no obligation to disclose this management agreement and in many cases may redact the controversial parts.

Proposal:

  1. Service charge accounts should include the name of all flats contributing to the charge, the % of each property and the name and address of the owner.
  2. All expenditure must be covered by receipts and not invoices.
  3. Landlords should not be able to ‘find’ invoices after the end of the accounting year and add balancing charges.
  4. Service Charge accounts should be for the benefit of the Lessees and Landlords and liability should not be excluded. Accountants should therefore have a contractual relationship with the Lessees under which Lessees can sue for inaccuracies. (Relying on third party rights is too high a bar).
  5. All tender documents and actual contracts, in particular management contracts should be disclosed. These documents could also be available on the internet. 

Major works transparency (s.20 consultations)
Landlords have different priorities than their leaseholders with regards to major contracts and will not select on price alone. Under current legislation Leaseholders may nominate a contractor, but without disclosure of the exact specifications the Landlord is contracting for the lessees’ contractor has no chance of success. Even if Leaseholders were given the specification and so could quote on the identical grounds the Landlord could narrow the terms to suit their candidate (i.e levels of insurance, ability to manage their whole estate etc). Even if the Leaseholder had the specification, found a contractor that did not think it was a waste of time quoting and came up best. The Landlord can still dismiss it with little or no reasoning.

Lessees under s.20 Landlord and Tennant Act 1985 are supposed to be consulted if a work undertaken will exceed £250 for any one leaseholder. The process for consultations were laid down in the Service Charges (Consultation Requirements) (England) Regulations 2003 (schedules 2&4).[5]

Under Schedule 4 the Landlord in some circumstances should invite Lessees to nominate a proposed contractor in competition to the Landlords. Is they do they should ask that contractor for a quote and under Schedule 4 (6) “state his reasons for awarding the contract or specify the place and hours at which a statement of those reasons may be inspected”. In practice like many consultations these are mere formalities.

Proposal:

  1. The Landlord should disclose the tender documents so Leaseholders can find comparable quotes.
  2. The choice should be made on price and not by the Landlord or the Landlord’s s.20 surveyor.

Separate Trust bank accounts. Leaseholders should to have the money for their sinking fund and expenses kept in a separate bank account to which they are allowed to see the statements. This would reduce the scope for money moving between properties, cross-subsidising a landlord’s properties or simply disappearing. This was passed by Parliament in 2002 (Leasehold Reform Act 2002 Section 156) but for some reason was never brought into force 

Enforcement

The Problem: Lack of legal redress to leaseholders. If a landlord or his managing agents take liberties with their leaseholders, a leaseholder has no practical recourse to law. This may sound like an odd statement, given there is a whole Residential Property Tribunal dedicated to solving these disputes, but in practice the tribunal should be avoided like the plague, for a number of reasons:

  1. The Tribunal is not a Court. It does not have the time or interest for long and complex cases, does not take evidence on oath and is easily swayed by the legal firepower at the disposal of large landlords. It’s a small legal world, and the money and careers (of tribunal judges) are made defending landlords, not small leaseholders.
  2. If a leaseholders wins (or loses), he may have to pay the landlord’s costs. This may seem odd, considering that if the leaseholder wins the tribunal has no power to award costs in his favour, but it stems from the fact that the majority of leases stipulate the leaseholder will pay all legal costs.  This is a very serious and real danger to a leaseholder. There are cases where leaseholders collectively have had to pay £300,000 in costs but, if an individual takes a case to the Tribunal, they may get hit with the whole whack – £76,000 in one case, allowing the Landlord to take possession of the flat. In another particularly bad case notified to MPs, the Wellcome Trust (a large London Landlord) charged a Leaseholder £94,905 for having partially won a case relating to a few thousand pounds of spiralling annual service charge bill – again threatening to force the leaseholder out of her flat (The landlord had argued it was reasonable to spend £1/4 million a year for a 5 acre garden). And of course if you challenge the legal cost as unreasonable you, will get another bill. That leaves the only alternative as paying up, something case law has held is acceptance of the charge.
  3. Leaseholders are trapped. If you cannot challenge an extortionate service charge, a wrongly calculated charge or shoddy management in the Tribunal, what happens if you refuse to pay the Bill? This, again, is a road to nowhere. A landlord can be assured of getting paid. They can threaten to take the property back (forfeiture) or – a common practice if the leaseholder has a mortgage – tell the leaseholder’s bank, who will then pay them directly and add it to their mortgage. With of course another legal fee added.
  4. Existing rights do not work. While opportunities for abuse are legion, leaseholders current rights are not sufficient. A leaseholder acting with half of his neighbours cab go to a court and buy the landlord out. They can also apply to take on the management. However, this is often not possible.  Tracking leaseholders who are often not resident and gaining approval is often impossible, especially when commercial landlords decide to use to law to obstruct it, or indeed own leasehold flats (and votes) themselves.
S.131 Housing and Planning Act 2016: “Limitation of administration charges: costs of proceedings”S.131 of the Housing and Planning Act[6] will not provide any effective redress for leaseholders facing attempts by freeholders to recover the costs of their legal fees at the residential tribunal nor will it motivate freeholder’s or their agents to improve the standard of their management or solve leaseholders’ complaints before they come to the tribunal or at all. The only solution is for the Tribunal to go back to what was originally intended and be No Costs.It remains an unequal system.
Under the current system the freeholder can in most cases claim back his legal costs from a Leaseholder by way of the service charge or an administrative charge. However a Leaseholder will not be able to claim their expenses from the Landlord. This will lead to a huge miss-match in legal firepower this means the Leaseholder will always be at a disadvantage.The Tribunal has a poor record in preventing Landlords free spending on legal costs
S.131 places the question of costs back with the Tribunal stating “The relevant court or tribunal may make whatever order on the application it considers to be just and equitable.” This would seem to be little improved from the previous system, where a Leaseholder could challenge an unreasonable charge by way of another application. As with s.131 an application for “unreasonableness” would create another potential cost from the Landlord and so another bill for the Leaseholder.  There is a large amount of case law on “reasonableness” in service charges and “administrative charges” which invariably allow for their recovery, placing the question with The Tribunal will simply copy existing practice.To give a real and recent example (regarding The Welcome Trust) a c.£94,000 legal cost incurred by a landlord in defending a service charge bill of c.£6,000 might still be judged to be “just and equitable” by the Tribunal if evidence of expenditure was forthcoming. Perhaps it might be reduced by 10% even 50% but that would still be enough to force the Leaseholder out of their flat and dissuade any other Leaseholder from challenging a service charge or its administration. With bills of this kind it is highly likely the remainder will be written off by the law firm making it very unlikely the freeholder will be left paying the difference.In this case the Tribunal decided that as the Leaseholder had lost the majority, but not all, of the points under s.20C it was “reasonable” to allow recovery before the Tribunal knew the scale of the costs. The £94,000 service charge bill arrived 4 months later, challenging that would risk a similar further bill and on and on ultimately leading to the landlord forfeiting the lease. It is worth remembering that as the Freeholder and its agents hold all the documents and can in a Tribunal, avoid disclosure and have overwhelming legal firepower, winning any part of a case for an individual leaseholder representing themselves is a surprising victory.

 

  • Mediation: Mediation, whether informal or imposed by the Tribunal should be the preferred way of resolving disputes. However, as long as a freeholder and its agents have a risk and cost free Tribunal there is no incentive to attempt settlement. In the Wellcome Trust case the Tribunal decided not to impose mediation as there was no chance of settlement as the freeholder saw litigation as beneficial.
  • Time limits: As there is no costs hearing in the Tribunal, the Landlord’s claim via the service charge will come many weeks or months later, it is unclear at what point the Leaseholder has to apply to reduce the claim, potentially before they have seen it. In the case of a claim spread over many leaseholders the £200 to the tribunal application may reduce any of the benefit of the application, especially as it may cascade new claims from the freeholder for the challenge to their costs.

Proposals

It should be recognised that the interests of the Freeholder and Leaseholder are not aligned. The Freeholder and its agents have little interest in cost effective management and if all legal costs can be recovered there is an incentive for the managing agents to use litigation to defend their management costs rather than seek mediation or solve complaints.

The current system is designed to encourage freeholders their agents and lawyers to rely on litigation as their complaints procedure of choice. For them it is penalty free for the Leaseholder there is the risk they may lose their home.

The tribunal claimed to be a low cost or cost free environment in which small claims and disputes could be settled without recourse to large law firms and barristers. The Tribunal for this reason does not award its own costs – it should not allow freeholders to help themselves. S131 does nothing to prevent this.

  1. Reform the Tribunal costs system. Landlords should not be able to recover their legal costs in the Tribunal by designating them as administrative costs, and adding them to the service charge of an individual or property. A reformed Tribunal should either be costs-neutral, or allow both sides to claim costs. This would change the behaviour of landlords, and increase the chances of settlements or the solving problems pre litigation
  2. No cost environment. If the policy goal of the Tribunal is to encourage better standards of management by Freeholders and their agents there should be encouragement to improve standards, reduce Leaseholder complaints and deal with them pre litigation then the tribunal should be a no costs environment.

Proposals for the Future
Stop the creation of new leaseholds. While the existing leaseholds are a problem, there is no good reason to create more. Legislate that all flats should be ‘share of freehold’ from the off. The proliferation of Government schemes for shared ownership has if anything made matters worse: this should stop.

  1. End existing leaseholds. While it would not be equitable to turn leaseholds into share of freeholds without compensating the landlords it would be possible to end this practice over time. The simplest would be to convert all 90 year statutory lease extensions into 999 year extensions therefore ending leasehold over c.20 to 30 years. The difference between a 90 year and a 999 year lease extension would be nominal.
  2. Enhance the chances of enfranchisement and the right to manage. A lower threshold for enfranchisement should be adopted particularly in cases where the leaseholders in a block are difficult to trace, or are in fact the landlord.
  3. Place the RICS code for managing agents on a statutory footing. While managing agents are supposed to follow best practice there is little to force them and no recourse if they don’t. The RICS code has many sensible suggestions, separate bank accounts, fixed fees over % fees etc but no power to enforce it. Placing it into legislation would have a positive effect on managing agents and Landlords.
  4. Ending Landlords rights to manage property. Along with turning all leaseholders into 999 year leaseholders legislation could require that once a % of a block are on 999 year leases they automatically gain a share of freehold and the right or obligation to manage the property. This would immediately improve the standard of management from agents hoping to retain the work from the new owners.
  5. Leaseholders should pay a fair amount to extend leases. Another example of the way in which the Tribunal services the interests of landlords can be gleaned from the recent “Parthenia (Mundy) Case”. A calculation for the extension of the leases (favourable to landlords) was originally put forward by the Grosvenor estate in 1996 and was accepted by the Tribunal. A challenge to it in 2016 pitted three individual leaseholders and their new model against a range of property interests including the Wellcome Trust, relying (amusingly) on the evidence from Professor Colin Lizieri, Grosvenor Professor of Real Estate Finance. You may imagine the outcome: the cost of lease extensions has gone up.So dramatic was the reversal in leaseholders fortunes springing from this one judgement that Peter Bottomley argued in Parliament that “I hope that the appeal succeeds, and that the Government will make sure that if it does not, the decision in the Mundy case will be reversed by statute.”A part of giving leaseholders security is to prevent vagaries in the Tribunal system leading to huge swings in the cost to extending their leases. The Mundy case should be overridden by Parliament.

    Estate management schemes (EMS)
    Leaseholders that have been able to enfranchise and buy their freeholds are not necessarily free from their historic Landlords due to the imposition of ‘Estate Management Schemes’ over a former estate as sanctioned by the Courts. This can involve the Leaseholder having to pay annual fees to landlords as well as additional fees and costs of their lawyers to undertake works that already have planning permission.[7]These schemes were either made under Section 19 of the Leasehold Reform Act 1967, (or under Chapter 4 or S. 93 of the Leasehold Reform, Housing and Urban Development Act 1993).[8]

 

While it is possible to argue the pros and cons of EMS to enhance a local area they have in many instances become a way (by lawyers and landlords) to extract fees and costs over a far wider area than that owned by a landlord. In some cases enfranchised ‘leaseholders’ can be charged many thousands of pounds by historic estate owners for items such as painting a house.

Proposal

  • All EMS should be converted into planning requirements as new ‘conservation areas’ with enforcement given to the local authority.

Reducing the cost of selling a Leasehold property. As a result of the complexity of Leasehold property and service charge accounting Landlords and agents can charge significant sums (c.£500 in some cases) for ‘buyers packs’ or the LEP1 form. These charges come despite the fact that information relating to accounts, the state of the building, impending repairs is information the Leaseholder is entitled to in any event. Proposal

  1. All accounts should be uploaded to the website of an organisation similar to ‘Companies House’ that ensures that these accounts are in a suitable format.
  2. All LEP1 information should also be uploaded to the same website.
  3. Conveyancers and buyers can therefore access the information from the LEP1 without the costly and time consuming business of sellers requesting information from the Landlord.
  • Communal gardens and other assets. Many leases include rights to use communal assets – such as gardens, access roads, storage areas, garages etc – owned by the freeholder. Enfranchisement however only extends to the dwelling and not any communal assets leaving leaseholders in an ambiguous position as to their continued use of these assets – often on a licence. There is a question as to what happens when all leasehold property is enfranchised, can the freeholder cancel the licences and take back the communal gardens for development? There is also a question of management, the landlord costs for managing communal assets can be just as bad as that of a residential block and will be subject to even less oversight.

Proposal:

  1. The right to enfranchise is extended to ‘communal gardens’ or roadways.
  2. The Kensington Improvement Act 1851, which allows residents committees to run gardens in Kensington via the council tax, is amended to extend it geographically to all of England and Wales and allow for cases where the majority of residents wish to take control even if the freeholder does not.[9]

 

Christopher Howarth is a senior researcher working in the House of Commons. Prior to this he worked for Open Europe, as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister.

[1] https://www.ft.com/content/0107b0c6-e5a2-11e7-8b99-0191e45377ec

[2] Service Charge dispute Guide http://www.servicechargedisputeguide.info/section-21-service-charge-information/

[3] S.25 https://www.legislation.gov.uk/ukpga/1985/70/section/25

[4] https://www.fsp-law.com/articles/getting-information-on-service-charges-not-so-easy

[5] http://www.legislation.gov.uk/uksi/2003/1987/contents/made

[6] http://www.legislation.gov.uk/ukpga/2016/22/section/131/enacted

[7] For an example: http://www.grosvenorlondon.com/getattachment/our-customers/Residential/BS-A-Guide-to-the-Mayfair-Estate-Management-Scheme-(Updated-28-Sept-2015).pdf

[8] https://www.lease-advice.org/faq/estate-management-scheme-ems/

[9] https://www.rbkc.gov.uk/council-tax/garden-squares/garden-square-legislation

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A short legal guide to leaving the EU

A version of this article can be found on ConservativeHome herebrexit

While in the UK a dwindling band of those unreconciled to the inevitability of Brexit marched on Parliament and were promptly lost amongst tourist crowds, in Brussels there is still a strong belief that the UK will never actually leave the EU. This is a dangerous belief as it may lead to the conclusion that a refusal to negotiate will lead to a change of heart in the UK, a Parliamentary vote, a second referendum and ultimately Bremain.

This would be a costly misjudgement, Brexit would still go ahead, but without negotiation it could lead to a needless disruption of UK/EU trade and good will. That is why the Prime Minister is right to reiterate that “Brexit means Brexit”. The message is beginning to get through in the EU capitals.

So, accepting the inevitability of the end point, how do we get there?

Our way or the Article 50 way?

Legally there are a number of ways to leave the EU. The UK is bound to the EU in international law by way of Treaty. The most obvious route to leave the Treaty is the one prescribed in the Treaty itself – Article 50 of the Treaty on European Union. This prescribes a two year period between notification and leaving[1]. The advantage is certainty, but it may take time. There are however other ways to leave.

The second way to leave is by using the Vienna Convention on the Law of Treaties to withdraw immediately and without negotiation. The Vienna Convention (Article 62) allows a state to withdraw from a Treaty if there has been a ‘fundamental change of circumstances. In this case the Brexit vote and the issues that arise from it could well allow the UK to argue it can unilaterally end its participation, so avoiding the Article 50 route.

The third way to leave the EU is by Parliamentary vote. The UK, unlike some other states, is a dualist country where international treaties do not form part of the domestic law. Parliamentary sovereignty would allow MPs to repeal the 1972 Act without going through and external procedure.

The Article 50 route will be the first method to be used.

Does the UK Parliament get a vote on Article 50? (No)

Article 50 sets out that the withdrawing state “shall notify the European Council” in line with its “constitutional requirements”. In the UK the power to make (and unmake) Treaties has long been a Royal Prerogative exercised by the Prime Minister. It is true that treaties that require domestic law changes need domestic legislation and thus parliamentary approval, but activating Article 50 does not.

There is an ongoing legal challenge by the law firm Mishcon de Reya that seeks to claim that Article 50 would cut across Parliament’s right to repeal legislation (i.e the 1972 EC Act) and so could not be exercised by the Prime Minister alone – it is highly likely to fail (see Article 50 note). There will not be a parliamentary vote before Article 50 is triggered and no UK or EU Court could injunct the Prime Minister from notifying the Council.

Will Parliament get any other votes on Brexit?

While Parliament will not vote on triggering Article 50 it will have to vote on a number of other issues. Prior to Brexit, the Government may wish to place existing EU laws into UK law, or at least have the legislation passed and ready if not in force and EU citizens already within the UK will need legislation to secure their rights. Additionally Parliament may wish to institute emergency or preparatory legislation in areas such as migration in contravention of EU law prior to leaving.

The Government may ultimately also wish to repeal the 1972 European Communities Act, although in case of opposition even that may not be strictly necessary as after a legal Brexit the Treaties to which the Act gives force will not bind the UK, making the Act as relevant in the UK as say placing the US/Mexican border treaty into UK law.

What Parliament will certainly vote on will be on any new UK/EU free trade agreement, but by then voting it down will not derail Brexit, just UK/EU trade. Given how little actual legislation is required, the chances of unreconciled EUphiles rebels mounting Parliamentary rebellions in the Commons or Lords are dramatically reduced.

How long will the Article 50 exit process take?

Article 50 specifies a period of two years for negotiations. Agreement could be reached before that, it could also be extended (with the EU27’s agreement) but if there is no agreement then the UK leaves at the end of the two year period. The length of time the process will take will depend on what the two sides are willing to negotiate and agree.

If the UK is seeking a complex, all-encompassing UK/EU agreement then two years could be a short time frame. Although, to reverse Parkinson’s law, the length of time needed for trade negotiations are capable of contraction as well as expansion to fit the time available. (Interestingly, in an emergency the EU took less than two months from conception to implementation to agree a tariff waiver for Ukraine.)

If the UK decides to seek an agreement more akin to those the EU has negotiated with Canada and South Korea, then given the UK already has implemented 100 per cent of EU law, the time needed to agree should be easily able to fit the two year window.

However, there are those within the EU that state they do not wish to a negotiate trade with the UK at all until it has left the EU and certainly not before the Article 50 process has started. If such an inflexible attitude is taken the UK may conclude there is little point in waiting for the full two years under Article 50 to fail to agree comparatively minor matters such as final budgetary issues, EU staff pensions and agencies etc. At that point the UK may seek to speed up the process by legislating domestically or resorting to the Vienna Convention to speed up the process and move onto the trade negotiations, but there is no sign that will be necessary.

Is Article 50 reversible?

There is a legal view, expressed by former EU legal adviser Jean-Claude Piris, that once the UK has embarked upon Article 50 it could at any point withdraw its “intention” and stop the clock running. Whether all the EU27 would accept the legality of a UK U-turn is debatable, but even the possibility of a reversal could create a danger for the UK’s negotiations. If the EU27 believe that the UK will at some point change its mind or hold a second referendum on the outcome of the negotiations then there would be no incentive for them to conclude a mutually beneficial agreement.

Who is in charge of the process: the FCO, the Brexit Department, the Prime Minister, or the Department for International Trade?

It is the Prime Minister who initiates the Article 50 process but there will be a whole range of UK departments and parliamentary procedures involved. We will have a Brexit department and select committee, an International Trade Department and committee and the FCO. In addition all existing departments will have to develop policy and identify UK interests for the EU and non-EU trade negotiations. Many of the policies are interlocking so co-ordination will be vital. On the EU side responsibility is again split: the member states have the lead role in negotiations but the Commission and European Parliament will also get a say.

Does Scotland have to give consent to Brexit?

Although the SNP administration is seeking to make political capital out of Brexit there is little they can do beyond sounding indignant. It is true legislative consent motions are required in some circumstances, but not for Brexit for the simple reason there will be no relevant legislation on Article 50. Although s.29 of the Scotland Act binds Scotland to obey EU law, it does not guarantee EU law’s existence – Brexit will if anything give more power to Holyrood, not less.

Will the Northern Irish border be affected?

At present there are no Customs or Passport requirements on the Northern Irish border. The reason for the passport free zone is that on independence in 1921 it was agreed to create a Common Travel Area, in effect a mini Schengen, between Ireland the UK.[7]

The Norther Irish border lost its final customs function not on entry to the EEC but in 1992 with the Single European Act. Whether customs will need to be reapplied will depend on the future EU/UK agreement, but it is noted that the Swedish/Norwegian border is a customs border but in practice is well organized with a bilateral agreement allowing both states to do reciprocal customs eliminating the need for two sets of officials.

How many sets of negotiations will there be? 

There are a number of separate negotiations which the UK will have to undertake during the process of leaving the EU. Here are the main ones:

  1. The formal exit from the EU. This would involve minor issues such as final EU budgetary contributions and shares of EU assets, unwinding UK membership of EU agencies, pensions for UK EU civil servants. The expectation is that this negotiation would have to be done under Article 50 (if that route is taken), and if no agreement is reached within the two years then there will be no agreement. In fact if the EU is insisting on a large final budgetary contribution no agreement may not be a bad outcome, making this part of the negotiation relatively simple.
  2. A new UK/EU agreement. This is the most important negotiation and complicated negotiation as it will govern the UK’s trade and with the EU going forward.  This could be agreed as one package or as a series of individual chapters over a period of time. The nature of this agreement will be the main topic of discussion during the Brexit process.

It is probable the formal exit and trade agreements will be negotiated together. 

The wording of Article 50 is ambiguous, it states that in the exit negotiations should take into account the “future relationship” between the EU and the departing state. It is also the case that the EU is bound by other articles to conclude agreements with its neighbours. That should be interpreted as allowing trade negotiations if the partners wished to and as we know the ECJ is a political court. However some within the EU machine are keen to argue that Article 50 can only settle the legalities of EU exit and that only once the UK has left can a trade negotiation be started. This seems unlikely to happen for strong political and economic reasons.

The UK would have little interest to agree an exit deal that does not include at least a basic trade agreement and agreements on pressing issues such as aviation and data protection. If the EU does not wish to engage in trade negotiations then there would be a gap which would cause economic dislocation for both sides. It seems highly probable both sides would wish to avoid this circumstance and that negotiations will lead to an agreement in place ready to go once the UK has left.

  1. Additional UK/EU agreements on other areas?It is quite possible that the main UK/EU trade agreement on issues such as tariffs and mutual recognition of regulations will not cover other sensitive areas such as Crime and Policing cooperation and potentially Defence and other Foreign policy cooperation. These could well be agreed in a series of separate bilateral agreements negotiated concurrently with the main agreement but may need to be done under Article 50 in as far as they relate to existing EU agencies.
  2. Full membership of the WTO. In order to strike WTO-compliant trade agreements the UK will have to become a fully functioning member. The UK is a member of the WTO, but as a member of the EU it does not have its own ‘certified’ schedule of tariffs registered at the organisation. Other WTO states would have to agree to certification, but there is nothing to prevent the UK trading on an uncertified schedule.

This would be helped if the UK seeks to continue with the existing EU schedule of tariffs. The UK could always decide to reduce them later; increasing them is more problematic.

While setting a Schedule may not be difficult, agreeing a an anti-dumping mechanism may incite opposition and the UK and EU will have to agree to carve up existing WTO approved import and export quotas.

  1. A further EEA renegotiation? It would seem unlikely that the UK would wish to remain in the EEA. As David Cameron explained in the referendum campaign, it has many of the disadvantages of the EU without any influence.  It also appears that the Prime Minister has ruled out this option, intimating a “unique” bespoke deal. However, were the UK minded to join the EEA it seems unlikely we would accept it as it is, designed as an EU anteroom for Norway and Switzerland. If we did seek to adapt aspects of this agreement, it would involve negotiations with the EU and the other EEA states.
  2. New non-EU free trade agreements. The EU has a number of its own non-EU free trade agreements and some that are in process or concluded awaiting ratification (i.e Canada). The UK will want to strike its own deals with these states, to avoid gaps, and conclude new agreements with others (Australia seems to be the first out of the traps). While a member of the EU, the UK cannot sign or implement new agreements but there is nothing to prevent all the preliminary work being done. This would also help ensure actors within the EU conclude that Brexit is inevitable.

One politically sensitive trade agreement that would need to be done would be to replicate the EU’s agreements for preferential access for developing states. While the UK could (and probably should) reduce its external tariff on sugar, if this is done within the context of the WTO’s MFN schedule it would preclude the UK giving a separate deal to the Caribbean. It would have to give the same terms to say Brazil.

Some action points:

  1. Capacity: The Department of International trade will need a new UK investigating authority to establish trade remedies, it will also need amongst others experts in WTO dispute settlement, negotiators and analysts, statisticians, and intellectual property specialists etc.
  2. Identify UK interests. The UK will need to identify what tariffs various industries require on imported goods. From the UK can identify its own offensive and defensive interests, taking into account potential changes in supply chains.
  3. Non EU FTAs. Identify whether non-EU states are willing to carry over the EU 3rd party trade agreements. If they are an adaption by the EU may be required to be agreed under Article 50.
  4. Create schedules for the WTO. These will be needed for tariffs and the Generalised Agreement on the Trade in Services (GATS).
  5. Become a signatory on current EU trade agreements. The UK should try and ensure the UK is a signatory on the WTO Trade In Services Agreement, (TISA) soon to be agreed. If the EU is the only signatory it would make it more difficult to join on Brexit. The same will go for other EU agreements currently under negotiation.
  6. Ensure as much as possible of the negotiations are done between the UK and the member states on the European Council. The Treaties specify that the Council sets the parameters of the agreement and at that point the Commission and eventually the Parliament have a say. As Mr Juncker, Barnier, Schultz and now the arch federalist Liberal Mr Verhofstadt – the Parliament’s new “negotiator” – are likely to be less helpful and more legalistic it is better to present them with a near complete
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Why it’s wrong to claim that Britain leaving the EU risks Scotland leaving Britain

The following was published on Conservative Home

There should be no surprise that the SNP claim (falsely) that Scottish opinion on the EU is dramatically different than English opinion. They are after all Scottish nationalists and need to constantly demonstrate Scottish exceptionalism or pack up shop.

It is also unsurprising that the SNP have tried to use the referendum on the UK’s EU membership to renew their failed bid for Scottish Independence – if the UK votes to leave the EU and Scotland does not, they claim there is a case for a second Scottish independence referendum. Of course they do, that and any other excuse. More surprising is that some Unionists (in the UK and EU sense) now say they agree with the SNP and are also arguing that a vote (in England at least) for the EU exit could put our 300 old union at risk.

For the most part this is opportunism by pro-EU campaigners. Finding it hard to create an emotional appeal for the EU institutions, they have decided to reverse the SNP ‘logic’ and experiment with playing the Unionist card. A bootlegger/Baptist coalition of the SNP and EUphiles opportunists both claiming the UK is at risk!

We might leave it there were it not for the fact that one serious Conservative politician has also decided to play the Unionist card in the EU debate – the Rt. Hon Lord Hague of Richmond. Writing in the Telegraph he cites that the preservation of the UK as his primary reason for supporting the EU. Now, Lord Hague has impeccable Unionist credentials and before he joined the FCO, could not be described as a EUphile, as party leader he called for a referendum on the Amsterdam Treaty, to ‘keep the £’ and he was no guileless EU state builder when I worked with him on opposing the Lisbon Treaty – indeed he promised to ‘not let matters rest there’.

Lord Hague’s central contention is that a vote to leave the EU will put the UK at risk because it would increase the chances of a new Scottish referendum and Scots might vote to leave. This is based on a number of assumptions:

  1. That Scots would still value joining the EU even if the rest of the UK has left the EU.
  2. Scots themselves agree with the SNP’s case for another referendum and see themselves as more EUphile than the rest of the UK.
  3. that the SNP will not call for referendum if the UK votes to stay in the EU.
  4. Scots will not themselves vote for Brexit.

All these assumptions are faulty.

Firstly, if the UK voted to leave the EU and Scots did not, which in a tight vote is a possible outcome, Scotland would find itself in a new situation. Whereas for now the SNP may see the EU as a convenient enabler of independence for small states (experience in Greece and Ireland notwithstanding) things would change if the UK left the EU.

No longer would the EU govern the free flow of goods and services over the Scots/English border. If the UK was out of the EU the SNP would be asking the Scots people to choose to join an EU that accounts for 16% of its exports and leave the UK that accounts for 65%.  For Scotland, as much as for England the UK is the Single Market that matters most.Scots exports

The SNP’s problems do not stop there, an application to join the EU would require the negotiation of Schengen and Euro opt outs in order to retain passport free travel with the rUK and allow them to create their own currency. There is also the issue of losing the UK budget rebate – we know achieving meaningful concessions in the EU is not easy.

Even if you believe Scots are pro EU, it would take a tough sell by the SNP to claim after the UK left the EU that EU membership still held such value and was so preferable to UK membership that it was a reason to leave the UK. At that point the political geography will have changed.

Secondly, Scots themselves do not see the argument for a second referendum if the UK votes to leave the EU. A study by Edinburgh University Academy of Government shows that by 55% to 45%, Scots believe the EU referendum should be decided on a UK-wide basis.

Nor is it clear that Scots are particular outliers on EU membership (or any other issue). YouGov collating data over a number of polls come up with a 60/40 Scottish split in favour of the EU, with Wales 53/47 and London 55/45 – by contrast East Anglia is 53/47 in favour of leaving. So marginally more pro EU but given the large number of excluded ‘don’t knows’ it is hard to make an argument for Scots exceptionalism – and amusingly the analysis shows 38% of SNP voters themselves support Brexit, which given the SNP’s roots in the fishing community is perhaps not surprising. So much for EUphile Scots nationalism. Indeed it might be worth the SNP pondering that while 44.7% of Scots voted for independence at least 40% of Scots back Brexit, presumably a large number are the same people?

Lastly, making a tactical argument that the best way to avoid breaking up the UK is to avoid a repeat Scottish referendum is both undemocratic and spectacularly misses the main point.

The truth is the best way to avoid Scottish independence is to prove the value of the UK to Scotland. It is to create a renewed pride in the UK, to demonstrate the benefits of our 300 year old Union, the amazing achievements we have done together in the past and more importantly what we can do together in the future.

The UK is a uniquely successful political arrangement, perhaps the most successful the world has seen. Rather than seek to avoid a Scottish referendum we should, Brexit or not, build on the UK’s achievements, renew its sense of purpose and Scotland’s invaluable part in it. Self-confidence is contagious, if we renew the strength of our conviction in the benefits of the UK, British civilization and its future Scottish nationalism will evaporate like the morning mist.

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What % of UK law comes from the EU?

EU red tape dragon

Is it 7%, 80% 50% or just too much?

Estimating the % of UK law that comes from the EU is an old game that is bound to come up as the UK edges closer to its referendum.

In essence those advocating EU membership such as Nick Clegg and Hugo Dixon use an absurdly low 7% figure in an attempt to down play the impact of EU legislation on the UK, – while simultaneously saying it is so important the UK must stay in to have “influence”. On the other side the “Leave” campaign will seek to highlight the full extent of EU law’s impact and come up with a much higher figure – such as 64.7% quoted by Business for Britain. So who is right?

Starting with the lowest figure it is possible to come up with.

Low Figure: 7%
If you only count the % of UK primary law (Acts of Parliament) that come direct from Brussels you can get a low figure, as Nick Clegg quoted in the Nigel v Nick debate. This of course leaves out all EU regulations and Statutory Instruments, i.e all the red tape businesses complain about, so is unlikely to give a fair picture of EU influence. As the House of Commons Research the 7% figure is based on notes:

“To exclude EU regulations from the calculation is likely to be an under-estimation of the proportion of EU-based national laws”

Medium range: 50% – 64.7%
A more realistic figure was ironically used by Nick Clegg in 2003 when he believed that 50%+ of UK law emanated from Brussels (he was trying to prove a different point at the time). A similar estimate to the 2003 Nick Clegg is that of Business for Britain which in a study counted all EU regulations and UK statutes that are EU influenced – 64.7% of UK law. Fullfact has also come up with a similar 2/3 of law.

High figure: 70 – 80%
If you wanted to justify a higher figure than that ironically the highest credible estimate comes from the then European Commissioner Viviane Reding who has argued the % was between 70% and 80%, although she latter half qualified the statement. Hans-Gert Pöttering a former President of the European Parliament has also claimed the % was 75%.

Of course the % of UK law coming from the EU is not a good measure of the degree of UK involvement in the EU, some laws are vastly more important than others, may relate to relatively minor aspects of trade standards, the CAP etc while others (say on criminal justice, VAT etc) have huge implications for sovereignty. However it does give a useful pointer to the constraints placed on our own Parliament.

Given that in exactitude there are a number of other different ways of counting EU laws – you can, perhaps more accurately also count the ‘burden’ of EU law to UK business as a proportion of all ‘burdens’ and get a high figure. The British Chambers of Commerce used to publish a “Burden’s Barometer” that identified the source of costly UK laws. This can be done using the designation on the Impact Assessments which helpfully state whether they are EU or UK. Alternatively Open Europe in a piece of research found that the 100 most costly EU regulations cost £27.4bn a year.

Whichever way you look at it the impact of EU law on the UK is large and despite efforts to rein it in still growing. This debate curiously mirrors the debate in Norway where Inners want to use a high figure (75%) and Outers a low figure (9%), read my post here for more.

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What are the chances of an In/Out EU referendum being passed in the next Parliament?

With the election campaign underway and the opinion polls too close to call the fate of the Conservatives’ EU referendum will depend on parliamentary arithmetic. We have a look at how things stand.

 The following was on Open Europe’s blog on 30 March 2015

When Parliament returns after the election we will have a new crop of MPs and potentially a new government of an as yet unknown complexion. The chances of the UK holding an in/out referendum will as always depend entirely on the Parliamentary arithmetic and the commitments made by the party leaders both before the election and in any subsequent coalition negotiations. Lyndon B Johnson’s first rule of politics: Its “practitioners need to be able to count.”

Given that, the announcements today by Ed Miliband, Nick Clegg and Nigel Farage and yesterday’s by the SNP’s deputy leader Stewart Hosie are all potentially significant. Here is a recap on where the parties all now stand on the referendum.

The Conservatives

The Conservatives’ policy on an EU in/out referendum is clear – they want one. This left some initial doubt as to whether David Cameron would negotiate away the referendum in any continuity Coalition negotiations with the Liberal Democrats. It is now inconceivable that David Cameron could or would stop his own MPs voting for an EU referendum in a new Parliament. What is less clear is whether he could or would be able to force the Liberal Democrats to also sign up to the referendum if their support is needed for a Coalition.

The Liberal Democrats

The Lib Dem leader Nick Clegg told BBC Radio 4 Today’s programme this morning that, “Of course there should be a [in/out] referendum …when we need to make a decision on transfer of new powers… If you want a referendum in all circumstances, then clearly don’t vote Liberal Democrat.” This statement needs a little interpretation. Firstly the Liberal Democrats voted for the “Referendum Lock” which would provide for a referendum if (in the unlikely event) the government proposed transferring more powers to the EU – but only on the new powers, not an in/out referendum. The statement that they would make this an in/out referendum is therefore an addition to what is already legislated for. For the historians among you , the party was against a referendum on the 2009 Lisbon Treaty and at that time also voted against an in/out referendum in the House of Lords.

Given that background it is an open question as to what the party would do if the Conservatives made re-newing of the Coalition conditional on Lib Dem support for an in/out referendum. What, however, is clear is that a minority Conservative Government is unlikely to have the Lib Dem MPs on side.

Labour

The Labour Party’s position on a referendum is more straight forward. Ed Miliband restated his opposition this morning, writing that, “This is a recipe for two years of uncertainty and chaos, when inward investors will hold off, businesses will be held back from planning for the future.” That is a clear ‘No’. Like the Liberal Democrats the Labour party have supported the “Referendum Lock” on further transfers of power and have also said that this should also trigger an in/out referendum, but with honourable frankness added it was “unlikely” they would agree to a transfer of power.

Minor Parties

The SNP Deputy Leader Stewart Hosie set out on Sunday that his party “will oppose an in/out referendum on Europe. And if there is one – we will campaign to stay in. And as Nicola [Sturgeon] has said, we will insist on a ‘Double Lock’ – so that Scotland cannot be dragged out of the EU against her will.” That looks like a firm no, although they have bigger fish they would ideally like to fry – as we pointed out here.

UKIP may also have a number of MPs and are keen to be seen to be even more in favour of a referendum than the Conservatives. UKIP leader Nigel Farage told Good Morning Britain today that: “I don’t want this to be kicked into the long grass until, say, the end of 2017… I think it should be before the end of this year. We’ve got loads of time, I mean, goodness me, we’re still in March. There’s plenty of time to do this.” Given that even with the best will in the world the legislation may take some time to pass through the Lords it is fair to say that is mostly rhetoric.

The other significant player in the Commons after the election will be Northern Ireland’s DUP. They have in the past been in favour of a referendum and had eight MPs this term.

So will there be a referendum – it’s all about the numbers

If there is a Conservative majority there will be an in/out referendum. If the Conservatives are just short, UKIP, the DUP, and a few Labour and Lib Dem rebels will ensure that the EU referendum legislation gets through the Commons.

If however the Conservatives fall a long way short and seek to rely on Lib Dem help, it is not clear whether they would get support for a referendum in return. If the agreement the Conservatives make with the Lib Dems is not an official Coalition agreement the Lib Dems will not feel compelled to support a Conservative policy, if it is an official Coalition policy they will have to vote for it. For all three parties there is the added uncertainty of how a potential defeat could alter current policy. Would a new Labour leader still oppose a referendum if it was believed to have been a contributory factor in their electoral defeat? Could the Lib Dems change direction under a new leader? And lastly, would a new Conservative opposition leader campaign for ‘Out’. We can not tell for certain.

What we can tell though is that if there is a Labour minority Government supported by the SNP or a labour majority government there is very little chance of a referendum. As Lyndon B Johnson said you will have to learn how to count.

 

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Conservative Home: The challenge to Brexit’s backers. Yes, it can be done. But it would mean difficult decisions.

The following article was published here

One of the more depressing statistics to come out of the Scottish independence referendum campaign was that 42 per cent of Scots said they would change their allegiance from the UK to independence for £1,000 a year. What price would you put on your national identity?  Or alternatively, what price would you, or your fellow voters, pay to be in or out of the European Union?

Firstly, what would the economic cost or benefit of leaving the EU be? Determining a precise cost will never be an exact science, but using a powerful trade modelling tool, one used in fact by the European Commission – The Global Trade Analysis Project (GTAP) – Open Europe has run the numbers for a number of different scenarios.

  • A worst case, where the UK leaves the EU and does not agree a continuity deal;
  • Two scenarios where the UK agrees a continuity deal but in one uses its new freedom to deregulate and reduce trade protectionism and one where it does not;
  • A ‘best’ case scenario where the UK strikes a good deal with the EU, deregulates, reduces protectionism opening up to cheaper imports from around the world, unilateral free trade.

Here are the results:

Open_Europe_Brexit_Impact_Table

So what do the results mean? Well the Guardian and FT and even the Telegraph focused exclusively on the worst case scenario – it made a better headline. There were however four Brexit scenarios, two of which could be positive for the UK, surprisingly these gained less coverage. Here is how the model came to its results:

It is undeniable that leaving the EU would have a cost, but it also has potential benefits. The initial cost is highest in the ‘worst case’ scenario – (-2.76 per cent of GDP) – mostly because it is assumed that our current trading arrangement with the EU would not be replaced by any continuity trade deal.

Next, the EU budget saving on Brexit may not be the same in all scenarios; it could be less in the case of the two EU Free Trade Agreement, since it is assumed there could be a cost to EU market access in the way Switzerland and Norway are asked to contribute.

As well as the initial cost, the GTAP model also captures the potential upside to the UK having the freedom to reduce its import tariffs; cheaper food, textiles and components for UK companies would all make us more competitive. This upside to this comes in at 0.75 per cent of UK GDP (potentially higher if the UK secures preferential access to markets such as the US). In addition to the benefit of trade liberalisation the UK could also use its freedom to deregulate, removing costly EU regulation. In a maximalist position this could give a 1.3 per cent GDP boost, but the reality would undoubtedly be lower.

What is clear is that contrary to the doomsayers dire predictions, leaving the EU will not bring down a rain of frogs, but it will present tough choices. Freeing up trade would benefit the economy as a whole but could negatively affect protected sectors – agriculture and textiles for instance. Other sectors such as wholesale finance might lose out if a new deal does not include full access for banks to trade across borders. We looked at a number of major UK sectors in the report and found that each sector could react differently.

There is no definitive answer but assuming a mid-case scenario, where there is no dramatic shift to economic liberalism/deregulation, it is clear that it is possible to come close to a breakeven point. Is the answer zero?

Having come up with 42 as the answer “to life the universe and everything Douglas Adams’ Deep Thought computer then had to reconsider the question? We should do likewise.

If your motive for leaving the EU is to push through large scale deregulation and trade liberalisation, it is probable the UK economy could do better than the current EU status quo. But that begs the question: will advocates of exit be able to win a domestic argument for deregulation and trade liberalisation having failed to do so within the EU. A Conservative Prime Minister Sir Robert Peel’s repeal of the corn laws in 1846 split the party in the process. Repealing the EU’s version of the corn laws would be less traumatic, but still a brave (if correct) choice.

The challenge to those who wish to make an economic argument for Brexit is not that it does not exist, but that it involves some difficult decisions. Deregulation and a reduction in trade protectionisms are not universally popular, or even universally popular among advocates of Brexit. Given that, will liberal advocates of Brexit dare to make the case?

If, however, your motivations are not economic but the desire to return decision making to the UK then the costs or benefits should not be an issue, it should be a matter of principle, but this group is not large enough to swing a referendum. So what price freedom?. In Scotland, it was £1,000.

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Conservative Home: Could the Conservative party strike an EU referendum bargain with the SNP?

The following article was published on Conservative Home here

Predicting the outcome of the next election is a mug’s game. But I will go as far as saying there is a chance it could be close and if the electorate decides to hang parliament then the SNP could be in a powerful position – the kingmaker.

Having the SNP holding the balance of power would be a recipe for instability, not least because creating instability at a UK level would serve the SNP’s core purpose. Chaos and argument could range across the whole gamut of Government, including defence, finance, constitutional issues – and the question of whether to hold an EU referendum.

The SNP’s position on an EU referendum is opaque: they voted for a referendum on the Lisbon treaty and obviously have no objections to referendums in principle, but conversely were not going to offer the Scottish people the choice of whether an independent Scotland should apply to join the EU.

If the Conservatives were to attempt to govern as a minority it should be assumed they would attempt to push on with an EU referendum. For that, SNP votes in Westminster could be crucial – but would they back it? So far, in order to square their advocacy for a Scottish referendum with opposition to an EU referendum, we have heard that the SNP would wish to argue that the referendum could only pass if all four parts of the UK voted to leave – a Scottish veto. I doubt this is the last word on the subject – after all, the SNP is far more interested in independence than the EU.

Scotland is not much less Eurosceptic than the rest of the UK. It is also true that having decided to remain in the UK, the question of EU membership is obviously something that the UK takes as a collective whole. The SNP disagree but what they would ideally like is another crack at an independence referendum, and a vote to leave the EU might be just the excuse they need. If the UK votes to leave, and Scotland votes to stay in the EU then instead of attempting to veto Brexit for the whole UK the SNP could settle for another referendum.

And this leads to an intriguing proposition: the SNP could back the Conservatives’ EU referendum on the basis they get another independence referendum should the UK vote to leave and Scotland votes to stay. But is it wise for a unionist Conservative party to offer the SNP a second independence referendum under these circumstances?

Playing out the scenario, the UK votes to leave the EU in 2017, but within the overall vote Scotland votes to stay. Scotland then gets the chance to vote either stay in the newly non-EU UK or leave the UK in order to apply to join the EU on its own. The SNP would be left arguing that EU membership was so important it was worth leaving the UK to go it alone.

This plan would face all manner of complications, which undoubtedly the unionist cause could explain. If the UK was not in the EU and Scotland was, there would potentially be customs and tariffs at the border. Scotland as a new state would have to join the EU from scratch and potentially be forced to join the Euro and Schengen, reinforcing the new customs wall with passport controls.

Added to that the currency question would re-emerge – would the EU allow Scotland to share a currency with a non-EU state, even if England willed it? Answer: No.

So Scotland would be left with many reasons to vote to remain as the only way to keep its relations with the UK. This would expose the fact that the SNP’s support for the EU was always based on the hope that both Scotland and the rUK would be members, making independence viable – if rUK upset that by leaving the EU then the calculation would have to change.

So it is quite probable that the SNP could back the Conservatives’ EU referendum, and then two referendums later remain within the UK but outside of the EU. Is it worth the risk? Perhaps.

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An early 2016 EU referendum would reduce the chances of EU reform

EU Referendum 2016

Is an EU Referendum in 2016 really such a good idea?

Instilling fear, uncertainty and doubt is one of the most powerful marketing ploys used to persuade customers to stick with the known product. Some business leaders exhibit all these reactions when confronted with the probability of an EU referendum. The fear is largely driven by uncertainty. Some business leaders seek comfort by attempting to share their fears, for others the solution is to play the ostrich and seek to avoid the referendum altogether.

The Director General of the British Chambers of Commerce John Longworth has another strategy telling The Financial Times that companies would actually welcome a referendum – but an early one – in 2016 rather than 2017. Less time, less uncertainty, but it is a mistaken strategy and one that would frustrate his members’ main aim. A survey of the membership of the BCC shows 64% say they wish to remain in the EU but with specific powers returned to the UK. For that the Government needs time.

Far from reducing uncertainty a 2016 referendum could create all manner of new uncertainties.  In 2016 we may not know the full potential of EU reform nor know in which direction the crisis hit Eurozone will lurch. We also can also not tell for certain what terms the UK would part on. A vote in 2016 could be a choice between two uncertain outcomes. Under those circumstances if the result was close it would not solve the question.

A more definite prospect would be to give time for both EU reform and the Eurozone crisis to run their course, creating a stable choice. For that 2017 itself leaves little time but is a more certain bet than 2016.

Businesses are not afraid of risk, they cannot operate without risk, it is an everyday occurrence, that can be planned for, analysed and if need be insured against. Uncertainty is a different and unsettling beast – something with an unknown probability or outcome. Business and financial markets have traditionally craved certainty and quantifiable risks.

But perhaps instead of an early referendum business leaders who fear uncertainty would be better served with a Labour victory as a way to avoid giving the vote altogether? Some in Labour would hope so, but this strategy is also misplaced. Longworth it right to recognise the danger, a Labour victory would not end chances of a referendum, mealy postpone it for a few years. In the meantime the Conservative Party may elect an ‘Outist’ leader. The chance of a referendum preceded by EU reform would be lost and the chances of an exit, preceded by years of uncertainty, would increase.

Recognising that a referendum is inevitable should lead business to another conclusion – seek to ascertain what a potential UK exit from the EU would mean for their specific businesses – to misquote FDR, if the fear some business leaders have is the fear of the fear of uncertainty, why not quantify it? Some sectors of the economy would be unaffected by an EU exit, some could benefit and some could be damaged – let’s find out what the practical problems are so they can be planned for and mitigated, reducing uncertainty and the fear of uncertainty.

British business should be optimistic; EU reform can happen and would provide economic opportunities while reducing the chance of exit. But in case it should fail, business should plan now for other eventualities. Business should think now how to maximise the opportunities presented by a UK exit and plan for the threats.

We do not know which way the Eurozone will go or for certain whether EU reform will succeed, but by pushing for EU reform and planning for all eventualities British business can genuinely reduce uncertainty. In order to go about it effectively the Government will need time – 2016 is not enough.

 

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