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20 OPINION WEDNESDAY 8 JUNE 2016 CITYAM.COM FORUM EDITED BY TOM WELSH Why Ireland only sees risks from Britain leaving the EU IT WOULD be nice to be able to shrug my shoulders, sit back and observe the current UK debate on the country’s future in Europe as a detached spectator. That, I am afraid, is not an option for Ireland. We are too close to the UK in all sorts of ways for us to be indifferent about what could be in the offing here after 23 June. We are near neighbours and friends, and this gives us a unique perspective on the current EU debate in Britain. When I look at the coming UK poll on Europe from an Irish angle, what I see are a multiplicity of risks that seem to us to be all too real even if their precise impact can be difficult to quantify. A desire to avoid these risks and uncertainties makes us hope that the UK will decide to remain in the EU. The first risk is the threat to our flourishing trading relationship. Irish-UK trade has blossomed during the 43 years our two countries have been members together of the European Union. Two-way trade between us now amounts to more than £1bn each week and it is growing. It is impossible to be sure how a UK exit would affect this mutually-beneficial trade, but the implications cannot be positive. After a UK exit, trade between our two countries would be regulated as part of a new trading relationship to be negotiated between the UK and the EU. A reduction of 10 per cent in trade flows back and forth across the Irish Sea – and there are those who think the impact could be much greater – would certainly damage our two economies and put DAVID Cameron has tried to frame the Brexit debate as essentially about economics. Standing with him is the overwhelming consensus of economists themselves, from academics to the International Monetary Fund (IMF). Yet their pronouncements are not having that much impact on the electorate if the polls are to be believed. There is justification for this public scepticism. The arguments relate to what might happen to the economy at the aggregate, or macro, level. How much will GDP rise or fall, how many jobs will be lost or created, what will happen to trade, to inflation? At the individual level, or micro level as economists call it, a great deal of progress has been made in the past 20 years or so. But at the overall, macro level, mainstream economics has if anything gone backwards. Concepts such as rational behaviour and equilibrium have been incorporated into the thinking many jobs at risk in both countries. The second risk that concerns us relates to Northern Ireland and specifically to the border between North and South in Ireland. Thanks to our EU membership, there is a single market on the island of Ireland and customs controls, which I am old enough to remember, are now a thing of the past. If the UK were to leave the EU’s single market after a UK exit from the EU, and that now seems to be the desire of leading campaigners on the Leave side, then it seems very likely that customs controls would need to be introduced again on the Irish border. This would be a serious setback to the growth of economic ties between North and South in Ireland and to the achievement of their full potential in the years ahead. But the risk does not end there. What if a UK exit were to generate pressure for controls on the movement of people across the border in Ireland? Such a development would, in the words of our foreign minister Charlie Flanagan, be “a nightmare of huge proportions”. The open border that exists at present benefits both parts of Ireland and both communities in Northern Ireland. It is part of the framework that supports the Northern Ireland peace process. It would be a shame to put that open border at risk. A related risk concerns the longstanding tradition of free movement between our two countries. It is true, of course, that the Common Travel Area predates our EU membership, but this mutually-advantageous regime has only ever existed when both countries were outside Daniel Mulhall No-one would pretend that the EU has over the years been an essence of perfection, but it does have an honourable record the EU, or when we have both been members. No one can say what it might mean for free movement when Ireland’s land and sea borders with the UK become frontiers between an EU member state and a non-EU member. A further concern of ours, and a very important one, is the risk to Europe stemming from a UK depar- of macro economists, at the very time that their micro colleagues are challenging them. Olivier Blanchard, until recently chief economist at the International Monetary Fund, has real form on the perils of believing orthodox macro economics. In August 2008, for example, just three weeks before Lehman Brothers collapsed and the worst recession since the 1930s burst onto the world, he published a paper claiming that the state of macroeconomics was “good”. The relationship between inflation and unemployment is a central building block of macroeconomics. Economists even have a special phrase for it, the so-called “Phillips curve”, named after the LSE-based academic who discovered it in the 1950s. The curve in theory says: the lower is unemployment, the higher is inflation. This is the subject of Blanchard’s latest offering in the American Economic Review. The Phillips curve is not just of academic interest. The Monetary Policy Committee, for example, has an inflation target, and unless its members know what the curve looks like, they are not going to be able to do a very good job. Blanchard sets out a formidable looking mathematical model. He then employs statistical techniques in conjunction with the theory, in the same way that, for example, the UK Treasury published one with their estimates of the trade costs of Brexit. Blanchard claims that “the US Phillips curve is alive”. Up to a point, Lord Copper. For one of Blanchard’s conclusions is that ture from the EU. This would be an unprecedented event, and it is difficult to see how the Union could be left unscathed by such a development. No-one would pretend that the EU has over the years been an essence of perfection, but it does have an honourable record. It has created a unique partnership between European nations, some of which have a long history of conflict. It has helped keep the peace in Europe for more than 60 years. While it would be wrong to claim that the EU deserves all of the credit for this achievement, it has certainly played its part. Europe since the 1950s has been a region of peace and prosperity, tolerance and respect for human rights. The contrast between the past 60 years and the decades preceding the emergence of the EU is stark indeed. And while it would be unwise to predict any repeat of the disasters of the first half of the twentieth century, it is true that the values the EU has championed since its inception are under some threat at present. We need a strong EU to help defend European values and our shared interests in a troubled, changing world. A UK departure would weaken Europe’s capacity to act effectively in global affairs. I understand that voters have a number of arguments they need to weigh up on 23 June, but it would be remiss of us not to draw attention to the particular risks that we perceive with regard to Northern Ireland and Irish-UK relations. £ Daniel Mulhall is Ireland’s ambassador in London. The poor state of macroeconomics justifies scepticism with Brexit disaster forecasts Paul Ormerod “the standard error of the residual in the relation is large, especially in comparison to the low level of inflation”. Translated into English, this simply means that his model does a poor job of explaining what has been going on. This is hardly surprising. The unemployment rate peaked in the US at just under 10 per cent in 2010. Since then it has halved to stand at just under 5 per cent. But inflation is slightly lower, at 1.1 per cent compared to the 1.6 per cent average in 2010. The story is just the same in the UK and Germany. Since the crisis, unemployment has fallen sharply and inflation has edged down. Macro models are by far the weakest part of economics. £ Paul Ormerod is an economist at Volterra Partners, a visiting professor at the UCL Centre for Decision Making Uncertainty, and author of Positive Linking: How Networks can Revolutionise the World. DEBATE Q: After grilling Mike Ashley, is it fair for MPs to demand business leaders account for themselves before Parliament? Ioannis Ioannou YES Yes, it is fair. To the extent that Parliament acts in good will to protect the long-term interests of society at large (as opposed to serving short-term political objectives), demanding transparency and accountability from companies that have a material impact on societal issues is a step in the right direction. Accountability in front of MPs, the elected representatives of the people, generates a strong public signal of institutional commitment towards corporate responsibility. Looking to the future, it could also make companies think twice when developing their strategy, particularly those that fail to account for potentially harmful societal impacts, negative environmental externalities, or failures to even comply with existing laws and regulations. Importantly, however, this type of public accountability could help companies themselves restore trust – but only to the extent that they are willing to honestly and genuinely engage with the process. £ Ioannis Ioannou is associate professor of strategy and entrepreneurship at London Business School. Tim Worstall NO That Mike Ashley should explain something to MPs is just fine: who knows, he might even have shouted some sense into them. That Ashley was actually being asked to explain himself to them was not fine. For of course, no-one expected any explaining to be done. This was an opportunity for MPs to get on TV while berating people, and no more. The original allegations were that working in a repacking warehouse isn’t that much fun. I’m unconvinced of the value of anyone having to explain that to politicians. Surely anyone capable of finding Westminster would know that already? There is one hope, though, which is that one day a proper plain speaker will be asked one of those idiot questions. When Margaret Hodge was berating Google, how we all longed for the “so why have you been voting for these tax laws we haven’t broken for 21 years then, Margaret?” £ Tim Worstall is senior fellow of the Adam Smith Institute and author of Chasing Rainbows: Economic Myths, Environmental Facts.
CITYAM.COM WEDNESDAY 8 JUNE 2016 OPINION 21 WE WANT TO HEAR YOUR VIEWS › E:theforum@cityam.com COMMENT AT:cityam.com/forum LETTERS TO THE EDITOR Brexit and protectionism [Re: Forget Remain’s Brexit deceptions: EU backers are the real protectionists, yesterday] While some will like Ryan Bourne’s vision for a Britain exposed to the bracing winds of global competition, as former WTO director general Pascal Lamy explained on Newsnight on Monday, if the UK gets rid of all tariffs (as Bourne suggests), then other countries will have no incentive to negotiate favourable access to UK companies. Although British consumers would benefit, big exporters would feel the pain and we could well see more manufacturing jobs leave the UK for elsewhere. That is presumably what the Remain campaign is saying when they question the impact of Brexit on UK jobs. Robert Marks Remain’s argument can essentially be boiled down to this: the people can’t be trusted. Whether it’s not to demand restrictive trade policies, pull up the drawbridge on migrants, or nationalise every industry, Remain says we need the EU to ensure that Britain doesn’t become a worse place. How patronising. Will Stewart Tax on success [Re: The post-crash entrepreneurial revolution has changed Britain: I want MPs to spur it on further, Monday] If the government were serious about helping entrepreneurs, it would alleviate the tax burden on the most economically successful and entrepreneurial region of the UK: South East England. Name withheld BEST OF TWITTER Our latest EU referendum rolling average puts Leave ahead by 0.5 per cent: Remain: 44.0 per cent; Leave: 44.5 per cent. @britainelects UK Brexit uncertainty hurting over one-in-three companies. @MarkitEconomics Cameron is just wrong about Brexit: we’ll have more freedom to lessen red tape and lower taxes. Britain will be even more investable. @DrPippaM Latest EU growth figures show countries on edge of Europe doing best – Sweden, Spain, Poland, UK. @asentance 4 per cent chance of a rate rise in June, 26 per cent in July. Yellen quite right to slap down the hawkish and clueless Fed presidents who can’t read the data. @D_Blanchflower As UK house prices rise at an annual rate of 9.2 per cent, Mark Carney and the Bank of England are “vigilant”! @notayesmansecon Sadiq Khan won’t improve life for London’s renters by wrapping buy-to-let landlords in red tape A“referendum on housing.” That was how Sadiq Khan described the London mayoral contest. Access to housing that Londoners can afford is certainly critical to the future success of the capital, and at the heart of the mayor’s plans are substantial reforms to private rented property. As the voice of private landlords, we welcome debate about the future of the sector. With predictions that 60 per cent of Londoners will be renting by 2025, up from 27 per cent today, there needs to be action to ensure that there is an adequate and enduring supply of affordable, high-quality homes. But it is vital that the mayor roots his plans in facts rather than horror stories trumpeted by siren voices who have a problem with anyone making money out of renting. The mayor has pledged to introduce a new “living rent”, for example, a proposal that comes close to rent controls. Many will welcome such a move, but the facts do not support the hypothesis that landlords are fleecing tenants for all they can get. ONS figures show that, in the year to February 2016, London house prices rose by 9.7 per cent compared to a rise of 3.8 per cent in private sector rents. If the mayor doesn’t think house price controls are needed, why are they required for rented properties? The solution is to increase the supply of housing across all tenures, not to introduce some artificial control on rents which would only stifle investment and make it harder for people to find somewhere to live. More housing will give tenants more choice, controlling rents and allowing tenants to avoid crooked landlords. Alan Ward But Khan can only achieve this by working with the private rented sector. Encouraging landlords to develop new properties on small plots of unused land across the capital, for example, would make a real difference. Landlords, whether as individuals or as small to medium-sized companies, have a good record of investment in new buildings, including on small plots. These plots are too small to be of interest to larger, corporate developers and they are often left empty, becoming unsightly and magnets for anti-social behaviour. The mayor must also come up with a comprehensive plan to address the nearly 60,000 empty homes government figures suggest there are across the capital. He might, for example, adopt an idea suggested by Islington Council to introduce planning restrictions on newlybuilt property to prohibit the deliberate practice of letting properties lie empty. The mayor is right to want longer tenancies, but he needs to remember that landlords can already offer them. The most recent English Housing Survey shows that the average length a tenant has lived in their private rented property is now four years. In fact, some good agents already offer tenancies of more than 12 months as standard and :@cityam this is spreading. Efforts need to be made to create an environment in which it is easier to offer longer tenancies instead of imposing them. Data compiled for the RLA by DJS Research found that 25 per cent of landlords were not allowed to agree tenancies longer than a year by their mortgage lender or insurers. Some less reputable letting agents in London also base business models on tenants regularly renewing tenancies. And what of regulation? Every tenant deserves to live in a safe, legal and secure home, but the mayor’s plans to help London boroughs set up landlord licensing schemes would do little to find criminal landlords. Analysis by London Property Licensing found that, between 2011 and 2014, of the 10 boroughs with the highest rates of prosecutions against landlords, just two operated any form of licensing scheme. Rather than creating more bureaucracy for good landlords, and more costs to be passed on to tenants, a more effective solution to identifying bad landlords would be to ask tenants who their landlord is through the council tax registration form. Boroughs already have the power to do this, but usually don’t do so or do not use the data obtained for housing enforcement. The private rented market has the potential to play a big part in meeting the need for new homes, but only so long as policy is evidence-based and avoids the hyperbole and prejudice that has too often characterised debate on the sector. £ Alan Ward is chairman of the Residential Landlords Association. @RLA_News. Fountain House, 3rd Floor, 130 Fenchurch Street, London, EC3M 5DJ Tel: 020 3201 8900 Fax: 020 7248 2711 Email: news@cityam.com Certified Distribution from 04/04/16 till 01/05/16 is 96,489 Editorial Editor Christian May | Deputy Editor Julian Harris Business Features Editor Tom Welsh | Lifestyle Editor Steve Dinneen Sports Editor Frank Dalleres | Creative Director David Riley Commercial Sales Director Jeremy Slattery | Head of Distribution Gianni Cavalli Distribution helpline If you have any comments about the distribution of City A.M. please ring 0203 201 8955, or email distribution@cityam.com Our terms and conditions for external contributors can be viewed at cityam.com/terms-conditions Printed by Trinity Mirror Printing, St Albans Road, Watford Herts, WD24 7RG Lord Mayor’s 2016 POWER OF DIVERSITY BREAKFAST SERIES BREAKFAST 3 disadvantage Disability – a desirable With speakers including: • George Selvanera, Director of Strategy & External Affairs at Business Disability Forum • Robert Hunter, Founder and Trustee of City Disabilities • Sarah Simcoe, Head of Business Enablement Business & Application Services at Fujitsu LORD MAYOR ATTENDING Event Sponsor: 22 June Seven events with expert speakers showcasing success stories and initiatives to help you overcome your D&I challenges. LORD MAYOR’S APPEAL CHARITY Breakfast Series Sponsors: Become a member now: Call 020 7332 1050 or email diversity@thelordmayorsappeal.org www.thelordmayorsappeal.org @LMAppeal The Lord Mayor’s Appeal
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