Sunday, June 26, 2016
I'm not going to sulk - we have to make the best of a bad job
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

For many people reading this, Friday morning will have dawned as a moment of triumph, of liberation. That was not how I saw it, as you might have gathered from my series of pre-referendum pieces. But, admittedly after a dishonest campaign, the voters decided otherwise. Democracy does not always throw up the outcomes we would like, or think sensible. We face a poorer and more uncertain future.

Despite his “no regrets” statement in Downing Street on Friday, I doubt if David Cameron now thinks that of the referendum that is bringing an end to his prime ministerial career. You only ask a big question of voters if you are sure of the answer. Downing Street thought it was sure of the answer as late as Thursday evening but it was wrong. As it is, a Tory prime minister Sir Edward Heath is most remembered for taking Britain into Europe 43 years ago, and Cameron will go down in history as the prime minister responsible for taking us out.

The Cameron-George Osborne double act, meanwhile, does not have much further to run. As with the referendum outcome, people will have mixed feelings about this. The chancellor has had more than his fair share of setbacks, particularly since last year’s election. As he joked himself, his version of the 5:2 diet is one in which in two out every five budgets he has to eat his words.

Osborne wanted to be remembered as the chancellor who took over at a time of crisis and, while courting unpopularity, fixed the public finances, alongside some long-term reforms, including pensions. Now, the abiding memory will be of the warnings on the economy that he commissioned or co-ordinated not being enough to persuade voters. Indeed, if the evidence of the polls is anything to go by, those warnings backfired with many voters. It is not hard to think who might succeed Cameron as prime minister. A successor to Osborne is rather harder to think of.

Osborne’s efforts were not enough, and neither were those of the overwhelming majority of economists, including highly respected bodies such as the Institute for Fiscal Studies (IFS). Businesses, big and small, were much less influential than expected, even locally. Nissan’s presence was not enough to prevent a big vote for Brexit in Sunderland, nor Honda in Swindon, nor Airbus in Flintshire.

Wednesday, June 22, 2016
10 reasons to vote to stay in the EU
Posted by David Smith at 11:00 AM
Category: Thoughts and responses


The moment has arrived. The biggest decision voters will take for decades is hours away. Most are unprepared for it, and with good reason. The referendum campaign has also revealed a new and unattractive type of politics in Britain. Just over a year ago we had what was in most respects a conventional general election. Manifestos were published, costings were made, and policies were tested. There was humour, and in the main it was good-humoured. This campaign has been very different, partly because battles within parties are always more fraught than those between them – there has been very little brotherly or sisterly love on show – partly because of the way the immigration card has been played, and partly because of a blatant disregard for facts, overwhelmingly by Vote Leave. Anything goes, and with it the truth.

For those of us who think there is not a credible or remotely sensible case for voting leave, what can we say to influence those who have yet to make up their mind? Here are 10 reasons to stay in the EU, which Britain has made a success of.

1. Crises are best avoided. Nobody can be sure that there will be a sterling crisis, within a wider financial market crisis, if Britain votes to leave. But enough people are saying it to make it highly likely. And it could be very nasty. People may think that these market gyrations are not relevant to them. They are wrong. Memories of the banking crisis of 2008-9 are too recent to mean we can ignore these things, and bank shares - here and in Europe - would come under pressure in the event of a Brexit vote. A sterling plunge, meanwhile, affects everybody, through higher food prices, higher petrol prices, a general increase in the price of imported goods and more expensive foreign holidays. And don’t believe the nonsense about Brexit lowering prices. Negotiating new arrangements for, for example, food imports, will take years, if they can be negotiated at all.

2. Self-inflicted long-term economic damage is never a good idea. The issue is not whether the economy heads straight into recession, though it easily could. It is that over the long-term, on all the plausible analysis, the economy will be smaller, and people on average poorer, with employment and living standards lower, if we vote to leave than if we were to stay in the EU. This would be the first time I can remember that voters would have voted for a poorer future.

Sunday, June 19, 2016
A hard pounding - and with so very little to show for it
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

The moment is nearly upon us. Like the Scottish referendum in September 2014 but with even more at stake, a nerve-racking few days lie ahead. Either way, we will wake up to a different world on Friday morning , a very different one in case of a vote to leave.

One point is worth making. It is that economic models tend to underestimate the impact of shocks, as we saw in 2008. Some people say leaving the EU will be a little like leaving the European exchange rate mechanism (ERM) in September 1992. Apart from the fact that both narratives involve a plunging pound, the similarities end there. In 1992 we left a currency arrangement after 23 unhappy months having joined, as was said then, at the wrong rate, the wrong time and for the wrong reasons.

Leaving allowed an overvalued pound to come down to earth, and made room for big cuts in interest rates, which are simply not an option this time. As for sterling’s fall providing us with the elixir of export-led growth, it did not happen after the pound’s 25% fall in 2008-9, and there is no reason – with world trade depressed – it would be any different now.

Voting to leave the EU after 43 years in which our economy has become increasingly intertwined with the rest of Europe, and done well out of it, would be a very different proposition to being kicked out of the ERM. Even leaving the ERM made the Tory economic brand toxic for years. Apart from the economic and financial fallout, the political instability that would result from a Brexit vote would be much bigger. Whether this would be helped or hindered by George Osborne’s threatened £30bn emergency austerity budget – and whether it would happen - is one of the many questions that would arise.

Sunday, June 12, 2016
Britain does very well in the EU - we would be daft to leave
Posted by David Smith at 09:00 AM


My regular column is available to subscribers on This is an excerpt.

It is time to put up or shut up. Should we stay in or leave the EU? Those who have been following my pieces in recent months will not be surprised by my verdict. The economic and business case for remaining in the EU is conclusive. We would damage ourselves, potentially badly, by leaving. We should stay in.

I do not want to concentrate on merely avoiding the negative consequences of leaving the EU. Later I shall set out the benefits Britain obtains from EU membership, our “dirty little secret”.

Before that, let me explain my verdict. When I started thinking and writing about the referendum after last year’s general election, it was without strong preconceptions. I always opposed euro membership for Britain and have written for this newspaper about the Swiss, Norwegian and other alternatives to EU membership, often to the intense irritation of politicians.

So what decided me? Three things. Britain’s economy is convalescing from the biggest financial shock in a century. Just a few years ago we came close to the edge of the abyss. We are still living in the shadow of the crisis.

To have one shock was careless; to impose a second, self-inflicted shock before we have got over it would be an act of stupidity. All the credible analysis – even from credible pro-Brexit economists - shows there would indeed be such a shock. Leaving the EU will mean a period of turbulence, and a significant hit to growth and jobs – GDP by 2020 between 2% and 6% lower than would otherwise be the case – and a big rise in public borrowing which can either be ignored (which international investors will not like) or require tax hikes or deeper spending cuts.

There might have been a time when we could happily accept a shock of this kind, with growth strong, the world economy buoyant and interest rates high enough for the Bank of England to be able to cut them aggressively to alleviate the pain. But this is not it.

Sunday, June 05, 2016
Leaving the single market risks a world of pain
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Judging by the many ideas I have had for post-referendum subjects – keep them coming – I sense that June 23 cannot come too soon for most. Are we nearly there yet? Yes.

Soon there will be no more of the Brexit camp’s bogus £350m figure, or its fantasy pledges of spending £100m a week more on the NHS or cutting Vat on fuel, which are an insult to voters’ intelligence.

Next week I shall pull all this together and the following week I shall clear up some important loose ends, but today’s piece is a reminder of how far we have come.

When, seven months ago – before we even had a date for the referendum – I wrote that if we left the EU we would lose the single market, the reaction from many Outers was that we would do nothing of the sort. The rest of Europe would be so keen to trade with us that they would allow us to leave while staying in the single market.

Time has moved on. Vote Leave’s position is clear on one thing; that a post-Brexit Britain will not be in the single market. What it will be in is not clear. The small group known as Economists for Brexit has suggested no trade deals at all and the unilateral removal of all trade barriers by Britain. I shall come back to that.

It is important in this debate to know what the single market is. It is not just a trade deal. It is one of the most important ways in which Britain has influenced the EU. When Margaret Thatcher took up the idea of the single market in the mid-1980s, and set Britain’s European commissioner Lord Cockfield the task of pushing it through, it was against the protectionist instincts of some other EU countries.

Sunday, May 29, 2016
Plenty of migrants - but plenty of jobs for UK workers too
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

The economic debate over EU membership rages on, with the heavy weaponry overwhelmingly on one side. I can only hope there will be a ceasefire on June 24 but I cannot promise it.

So in the past few days we have had the Institute for Fiscal Studies confirming the conclusion of this column on May 1st, “There’s no pot of gold at the end of the Brexit rainbow”, and that there will not be the Leave campaign’s dodgy £350m a week figure to spend on the National Health Service or anything else.

Because the public finances will suffer in net terms from Brexit, on all plausible assumptions, there will be less to spend on services, not more. The IFS, for pointing out this simple truth, got accused by the teenagers who run the Vote Leave campaign of being a propaganda arm of the European commission or, even more absurdly, by Nigel Farage – EU-funded for the past 17 years – of being biased because it gets some funding from the EU.

The IFS’s great achievement over decades has been to rise above politics, informing the debate. Its intervention on the likely consequences for the public finances of a Brexit vote maintained that tradition.

What about the Treasury’s prediction of a short-term Brexit shock of between 3.5% and 6% of gross domestic product, and up to 820,000 fewer jobs than under a Remain scenario? Given that it probably did not need to do it, or be asked to do it, did the Treasury lay it on a bit thick?

Sunday, May 22, 2016
We hate EU red tape - but others are tied up more than we are, and there'll be no bonfire of it
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

A few weeks ago I came across a woman who told me that she was voting to leave the European Union because it had stopped her buying traditional light bulbs. She was, pun intended, incandescent.

I suggested that this was not a very sensible basis on which to base a decision but she was having none of it. The EU had gone too far. I tell the story because it illustrates a wider theme, the perception that Brussels is foisting things on us that, were we to leave, we would no longer have to do; that it is strangling us in its unnecessary red tape.

In the case of incandescent light bulbs, the position is clear and entirely the opposite of that perception. Hilary Benn, environment secretary in the Labour government, announced in 2007 an agreement with retailers to phase out the sale of incandescent light bulbs by 2011. Britain, he said, was “leading the way”.

His initiative came two years before an EU agreement to phase out the bulbs. In this, as in many things, the EU was going with the flow. Most countries have plans in place to phase out old-fashioned energy-inefficient bulbs. In Britain, I should say, nearly a decade after Benn led the way in banning them you can still buy them if you know where to go.

It would be unfair to blame my light bulb lady. For years, blaming Brussels for most things has been the default position of a significant proportion of the media and, it should be said, quite a lot of politicians. The EU provides good cover.

Nor will this stop. The Arthur Daleys abound in the referendum debate. I heard one the other day giving a ludicrous figure for the cost of EU regulation, repeat the now discredited £350m a week figure we “send” to Brussels and claim most businesses in Britain favour Brexit. They don’t. Every credible business survey, covering firms from the large to the very small, show a net position in favour of staying in the EU, apparently in spite of all that red tape.

Sunday, May 15, 2016
Amid all the referendum excitement, the long wait for a rate hike goes on
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Thursday’s Bank of England inflation report press conference was, by my calculation, the 29th since interest rates last changed. I may have missed one or two but sat though most.

If you think that’s a burden, think of the members of the monetary policy committee (MPC) itself. The latest “no change” verdict from their May monthly meeting was the 86th in a row. The personnel have changed along the way, and MPC members would not doubt say there was nothing they would rather have been doing. But no wonder, perhaps, the Bank is reducing the number of MPC meetings from 12 to eight a year.

There was a time when the Bank was expected to be the first of the big central banks to hike rates. Then, when it became clear that America’s Federal Reserve would be the first-mover, which it was last December, that the MPC would follow soon after. Now, it is fair to say that there is more speculation about a cut than a rise.

Part of that, of course, arises from the part of the Bank’s inflation report that Mark Carney, its governor, described as “the elephant in the room”. Its view that a decision to leave would have “material economic effects”, including weaker growth, higher inflation and rise in unemployment, was explicit.

Sterling would fall, “perhaps sharply”, and: “Aggregate demand would also likely fall, relative to our forecast, in the face of tighter financial conditions, lower asset prices, and greater uncertainty about the UK’s trading relationships. Households could defer consumption, and firms could delay investment. Global financial conditions could also tighten, generating potential negative spillovers to foreign activity that, in turn, could dampen demand for UK exports.”