23 March 2015

Given how politically contentious the issues of immigration and EU free movement have become, they are likely to be the most politically fraught areas of policy post-Brexit. Our research illustrates that there are two questions to which those who will campaign for UK withdrawal will need to provide answers.

Question 1: Would the EU offer comprehensive access to the single market if the UK did not accept similar free movement arrangements as it does now?

Our modelling suggests that establishing some form of free trade agreement is vital to offset some of the cost of withdrawal (our model actually provides for relatively open access to EU markets, somewhere between that of Norway and Switzerland). However, the Norwegian and Swiss models of EU association (which are the most advanced trade arrangements the EU has with any non-members) illustrate that accepting the principle of EU free movement of people may be the ‘price’ the UK has to pay in order to gain liberal access to the single market.

Switzerland is in the middle of trying to negotiate quotas and restrictions on EU migrants while retaining its other EU trade agreements, without much joy so far. The UK-EU negotiation might be different, but it seems unlikely that the EU’s attitude will change on this issue. However, if Switzerland is somehow successful, Better Off Outers will potentially have their answer to this first question.

Question 2: How is the UK going to compete post-Brexit if it adopts policies that restrict the supply of workers?

The answer to the second question would not necessarily mean accepting current UK policies on either EU free movement or immigration from the rest of the world as they are now. Clearly, free movement of labour does not preclude immigration and border control policies. However, our analysis does suggest that if these policies were to restrict the UK labour supply or the services provided by that labour, this would have a negative impact.

Outside of the EU, and depending on its negotiations with the EU (see Question 1), the UK could potentially adopt different immigration policies to alter the mix of imported skills, nationalities and enforce border control, such as a new visa regime or rules on intra-company transfers. This is broadly the position Douglas Carswell takes on the issue, for example, which is entirely consistent and coherent. In his recent article for The Times on the subject he noted that,

Perhaps the greatest failing of the immigration system is that it discriminates against precisely the sort of people who, in a world of increasing labour mobility, we might actually want to attract.

Douglas Carswell, The Times, 24 February 2015

The big question is whether large parts of his party and those who might vote for withdrawal in a referendum share his economically liberal views on immigration and free trade – as Carswell notes, in today’s globalised world, the two are increasingly linked.

From a trade policy perspective, placing restrictions on the movement of labour is likely to be negative since restricting the potential labour supply would mean that the UK economy would react differently to future growth opportunities. For example, limiting labour supply could make the UK less competitive by raising wages and prices. If this happened at the same time as the UK opened up to free trade and new low-cost competition from emerging markets in India and China, some UK-based businesses could find it even harder to compete.

Another way to increase the UK labour supply is to boost the numbers of UK-born people in employment – through better education and skills. This is another policy lever already available to the UK – one which has very little to do with the EU. Better Off Outers need to explain how it would be different outside.

To sum up, our findings are broadly consistent with the liberal Eurosceptic case for withdrawal as set out by the likes of Carswell. The final question is whether that case would win a referendum.