Let electioneering begin… over EU membership

John Kenchington

Financial services clearly dodged a bullet with the Conservatives’ surprise victory in the general election.

The threats by Labour leader Ed Miliband to attack the banking sector with draconian taxes and regulation, price control the energy sector, raise taxes for the wealthy and clamp down on ‘hedge funds’ and the like have been neutralised.

The doomsayers will now turn their attentions to the fact that a referendum on the UK’s EU membership was promised by the Tories by the end of 2017.

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Apparently the UK government has held 12 major referendums over the years.

The first four took place in the ’70s and saw efforts to devolve power in Scotland, Wales and Northern Ireland rejected.

Labour leader Tony Blair initiated a slew of referendums in the ’90s that successfully devolved power to Scotland, Wales and Northern Ireland.

In 1975 a convincing 67.2 per cent of the public voted for the UK to stay in the European common market.

The main issue with this new EU referendum is of course that it’s likely to inhibit or delay business investment as companies wait and see what the likely outcome will be.

It could deter businesses from around the world from setting up in London, a major launch pad into the European market for global enterprises.

We’ve recently seen two major Chinese asset managers, Nord Engine Asset Management and Harvest Global Investments, arrive in London and it would be a shame if others didn’t follow.

However, the Tories’ insistence on extremely attractive corporation tax rates in the UK should help to offset the uncertainty.

Last week ex-BBC journalist and JPMorgan market strategist Stephanie Flanders made the point that the UK’s EU membership would have remained on the agenda regardless of the election result. There is no evidence a referendum in the next two years would be any more likely to lead to an EU exit than one in 2020 or even 2025.

That is true, and arguably if we don’t simply settle this question of our EU membership once and for all it will always hold back domestic and foreign investment in our economy.

I would say people should not get too carried away about the referendum.

For starters, there are a number of ways it might never come to pass. Even a Tory private members’ bill simply calling for the referendum to take place was blocked by the House of Lords in 2013 in the first example of political wrangling over the issue.

But what’s the point in calling for calm? This is Britain, and we absolutely love to get carried away about things.

So, welcome to two-and-a-half years of coverage of all the angles stemming from this ongoing debate.

John Kenchington is editor of Investment Adviser