Business leaders are starting to make their voices heard about Britain’s role in the EU, and about time too.
As the prime minister prepares for this month’s critically important speech on the subject, there is growing pressure on him to promise a referendum after the 2015 election of a kind that could lead to Britain’s exit. Such a commitment would yield tactical benefits at home. It would take the wind out of the sails of the UK Independence party, seen as a growing threat in the Conservative party’s heartland. It would help to change the mood of at least some troublesome backbenchers. And it would appease the Europhobe media, which should be natural Tory allies but which have become increasingly offensive about his leadership.
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These gains would come at a cost, however. The government rightly insists that all policy initiatives should be tested against their potential impact on growth. And it is hard to see how more than three years of uncertainty about Britain’s position in its biggest marketplace would do anything but damp the overall pace of economic activity.
Private sector investment has a central part to play in building recovery over the medium term. In its latest forecast, the independent Office for Budget Responsibility says that worries about the outlook for global and domestic demand have led companies to postpone spending decisions. But it is forecasting brisker expansion by 2015 and 2016, with business investment rising at an annual rate of more than 10 per cent, more than offsetting the impact on growth of the continuing squeeze on government consumption.
Is this likely to happen at a time when the UK might be locked into its most important, hotly contested political battle in decades?
Japanese and South Korean investors are already asking about the implications of a possible British exit from Europe. And foreign direct investment would not be the only growth engine that could stall. UK companies, too, might well decide to hold back until Britain’s place in the European economy became clearer. Safer, perhaps, to continue pushing new investment into Asia’s emerging economies than to take the risk that the UK’s position could be changed by a referendum decision.
Other questions could also start to trouble potential investors. For example, science budgets are under increasing pressure. One result is that Britain’s top universities, which are a powerful magnet for inward investment, have become increasingly dependent on European research funding – one estimate suggests that 10-20 per cent of their research income now comes from this source. What would happen to the UK’s science base if this money were to disappear, and would the taxpayer be willing to plug the gap?
Of course, the UK remains an attractive destination for inward investors. One of the best pieces of news in recent weeks was Nissan’s decision to manufacture its new premium vehicle at the Sunderland plant in the northeast of England for export worldwide, bringing with it sizeable investment and hundreds of jobs.
This is one of the most productive assembly plants in the world, and it makes sense for Nissan to build on its success. But as Honda made clear this weekend, Japanese carmakers would be alarmed by the prospect of substantial changes in the relationship between Britain and the EU. And they are not alone.
Most corporate leaders want to steer well clear of politics. But the prime minister is having to take a path towards what will be one of his most critical decisions at a time when one side of the argument has been dominating the debate.
If businesses feel it is better to keep their political options open at a time of such uncertainty for the UK and for Europe, and if they believe a prolonged period of wrangling is more likely to damage than enhance job creation and economic recovery, they should say so – preferably in public.
The most powerful voices would come from countries that have a big stake in the UK economy, and therefore a real interest in its performance. This means, above all, US businesses, which remain by far the largest source of foreign investment. It is time they followed the lead of their country’s diplomats and put their heads above the parapet.
The writer is a senior independent adviser at Deutsche Bank, Chancellor of Warwick University and a former FT editor