U.K. employers, economy turn sights on EU referendum risks

Tighter immigration rules could aggravate shortage of skilled workers
By William Schomberg
|hrreporter.com|Last Updated: 06/18/2015

LONDON (Reuters) — For Encocam, one of the world's few manufacturers of crash test dummies, a British exit from the European Union looks like an accident that will probably be avoided.

But if things turn out differently in the country's planned EU referendum, it will have big consequences for the company based 20 miles (30 km) northwest of Cambridge.

The firm's managers say they would have to move "significant parts" of the business abroad if it became harder to hire foreign workers. Currently, a third of Encocam's 180 staff are non-British, including skilled engineers from several EU states.

"Personally, I don't think we would be mad enough as a country to go for it. So right now, we are not really that concerned," managing director Mike Ashmead said. "But over the next 12 or 18 months, we will see how it goes."

A so-called Brexit — or a British exit from the EU — is rising up the list of risks for many British companies.

As well as tighter immigration rules which could aggravate a shortage of skilled workers, executives worry that a Britain outside the European Union might find it hard to maintain free access to the markets of the other 27 EU countries.

For the financial services industry, a big provider of jobs and tax revenues, a Brexit would mean a gradual loss of power, the City of London's policy chief told Reuters this month.

Prime Minister David Cameron hopes his plan to hold the vote by the end of 2017, once he has secured EU reforms, will settle a decades-old rift that has split hisConservative Party and stem a loss of support to the anti-EU UK Independence Party.

But some worry that the government could be distracted from pressing economic priorities. Ratings agency Standard & Poor's says the focus on Europe could delay improvements to infrastructure or attempts to tackle a housing shortage.

S&P warned this month that it might strip Britain of its AAA credit rating because leaving the EU could diminish long-term investment flows, erode London's status as a banking center and cost sterling its standing as a global reserve currency.

Seeking to counter concerns that Britain was losing its appeal for investors, Cameron announced on June 17 that the value of foreign direct investment in Britain had topped 1 trillion pounds ($1.57 trillion) in 2014 for the first time -- the highest in Europe.

Keeping calm, investments continue

So far, bosses of companies in Britain say they are not changing their investment and business plans.

Carmakers, which would be most exposed to the risk of EU trade barriers in the event of a Brexit because of the bloc's high tariffs on automobile imports, have not scaled back.

Nissan announced on June 18 a 37-million-pound investment at its plant in the northeastern city of Sunderland.

"As long as a European plant in the U.K. works," the group would support it, Renault-Nissan Chief Executive Carlos Ghosn told Reuters earlier this month. "If it doesn't we'll adapt.... If there's a major change, we'll reconsider."

The calm in the boardrooms stems from opinion polls which suggest a majority of Britons will vote to stay in the bloc.

But a once uneventful-looking referendum on Scottish independence turned into a nail-biter last year before voters backed remaining in Britain.

With that scare fresh in their minds — and aware of how the polls failed to predict the outcome of May's national elections — ompanies are taking nothing for granted.

"When you're talking about a referendum, you're talking about injecting uncertainty and that intuitively is bad for investment," Terry Scuoler, chief executive of EEFwhich represents British manufacturing and engineering firms, said.

"There has to be a suspicion that this will dampen investment, but we are picking up no evidence of it yet."

He has called on Cameron to hold the referendum as soon as possible to reduce the uncertainty effects.

Britain is still healing after a deep recession and needs more business investment to take over from a rise in consumer spending which has propelled the recovery so far.

"Our concern is that after five or six years of waiting for business investment to come through, we could have this European-induced uncertainty which prevents it," said Richard Batley, an economist with Lombard Street Research.

"The economic cycle in the U.K. could be cut short."

Big hit or small boost

There are significant differences of opinion over what an actual exit from the EU would mean for the economy.

Researchers at the Bertelsmann Foundation in Germany predict that Britain's economic output per capita, if the country left the EU in 2018, could be as much as 14 per cent smaller by 2030 than if it stayed in the bloc, under a worst case scenario.

Much of the hit was attributed to lower international competition, which would gradually make British companies less innovative and invest less, it said.

Open Europe, a think-tank with links to Cameron's Conservatives, says a "politically realistic range" for the impact of a Brexit on the size of the economy by 2030 goes from a hit of 0.8 per cent to a possible boost of 0.6 per cent.

Both scenarios assume that Britain would strike a trade deal with the EU that it had just left. The more positive of the two outcomes is based on Britain reaching similar trade deals with other countries and cutting back on some rules and regulations.

S&P last week warned that it could cut its rating on British debt by more than one notch depending on the expected nature of the country's relationship with the EU.

Supporters of Britain leaving the EU scoff at suggestions that other European countries might not want to keep trade flowing freely. They say the only big EU import tariffs that could affect Britain are those on automobiles and countries such as France and Germany would want to ensure their car-makers face no new barriers to Britain's 64 million-strong market.

"I don't think there is any risk to our trade at all," said John Redwood, a former Conservative government minister who is a leading advocate for getting Britain out of the EU. "Germany sells us twice as much as we sell to Germany and so it would be quite bizarre for them to wish to establish a trade war."

But some businessmen worry that Britain may find it harder to do business with former EU partners given the scope for non-tariff barriers such as rules and regulations.

"If we left the EU, the barriers to entry could increase," said Andrew Brown, strategy director at Holovis, an immersive technology firm which makes high-end display systems.

"Our reason for leaving is political so I don't see any reason why the EU won't play politics the other way around."

Add Comment

  • *
  • *
  • *
  • *