How would Brexit affect UK engineering and manufacturing?

Published:  15 June, 2016

PWE spoke to Terry Scuoler, chief executive officer at the EEF (Engineering Employers’ Federation), about the upcoming EU referendum.

How would Brexit affect UK engineering and manufacturing both in the short term and the medium to long term?

TS: In the immediate period there is bound to be a stutter while we negotiate our exit because of the uncertainty it would create. We’ve anecdotal evidence from companies who have told us that while their plans to invest aren’t being affected at the moment, they would be put on hold if the UK votes to leave. In the longer term I’m convinced that our economy would suffer for all sorts of reasons. Clearly we’d survive and, while I don’t subscribe to some of the more extreme predictions, I do think there’d be significant loss of jobs and our economic growth would be less than it otherwise would be.

What are the arguments for remaining in the EU from a British manufacturing perspective?

TS: There are a number of reasons. The EU is the biggest single market in the world with 500 million people so why cut ourselves off from it? As well as our biggest export market, it also provides a springboard for companies to export to the rest of the world, both through the trade deals the EU has negotiated and also the fact that once you’ve dipped a toe in the water exporting to the EU it then becomes much easier to export to emerging markets. We also benefit hugely from Foreign Direct Investment which is undoubtedly due to our being a member of the EU, would all the Japanese car companies have come here for instance if we weren’t a member of the EU? I very much doubt it. We also benefit hugely from EU research and innovation spending.

A minority of manufacturers have said that the ‘IN’ campaign fails to put forward the negative EU impact on UK manufacturing and that some manufacturers would do better outside of the EU – do you agree that British manufacturing could thrive outside of the EU?

TS: I’m not sure what the negative impact refers to? Clearly the EU as it stands at the moment needs massive reform and, being Chair of our European Federation and spending a lot of time there, I’ve more experience of it than many. It all depends on your definition of ‘thrive’. Clearly we’d survive outside and some companies would undoubtedly prosper. It’s a balance of risk, however, which all businesses will be used to and from where I stand the risks of leaving outweigh the risks of staying. I can tell you the facts of the positive benefits being in the EU brings, whereas the ‘out’ campaign cannot paint me a picture of what being ‘out’ looks like and what the benefits will be?

What are EEF members saying about Brexit? What are employers most concerned about?

TS: We have conducted exhaustive surveys and anecdotal research in recent years to ensure we have a very accurate picture of what our members think about Brexit. The majority (two thirds) want to stay in and only 5% currently want to leave. The top reasons they gave for wanting to stay are access to the single market for both trade and recruitment. They are rightly concerned that if we leave both of these will be significantly affected. They are also concerned about the uncertainty that leaving will bring and, the potential for lost investment which is of course the great unknown but is very real, especially given the extent of foreign ownership in our sector which means investment can be very easily diverted away from the UK.

Do you believe investment and competitiveness would be affected?

TS: I do believe investment will be affected. I find it difficult to believe that the fact the UK has been the largest beneficiary of Foreign Direct Investment is not linked in a significant way to our membership of the EU. Half of non-EU firms that have European Headquarters have them in the UK plus we’ve seen huge amounts of inward investment from India, Japan, China and the US. It’s stretching credibility a long way to suggest all of this and, the high quality jobs, would still have come here if we were outside the EU. Our competitiveness may be affected if we were subject to tariffs in some way, which is another issue the ‘out’ campaign can’t be sure about. We might not be but there’s a risk we will so why take that risk?

Is the government over emphasising the unknown consequences of leaving?

TS: No, I don’t believe they are because leaving is exactly that, it is a leap into the unknown. On the other hand the benefits that EU membership has brought are clearly known, the facts are indisputable.

Do you have any sympathy with the Leave campaign’s arguments? Which areas are justified and which are unsubstantiated?

TS: The only area where I sympathise is that the EU as it stands is not fit for purpose in terms of a strong enough focus on creating growth, jobs and enterprise. I do not look at it through rose-tinted spectacles but I believe it is better to stay and fight, indeed lead, the charge for reform from within. Other than that I think many of the ‘out’ campaigns arguments are completely unsubstantiated. They cannot in any way shape or form tell me a certain and predictable scenario in which the UK and manufacturing would be better off outside the EU.

What is the biggest single concern if Britain voted to leave in your opinion?

TS: It’s simple, that economically both in the immediate and longer term we would be worse off. That means lost growth, investment and jobs which, in turn, means lower standards of living in work and into retirement.

What type of trade agreements would you envisage if we left?

TS: It’s impossible to envisage and to suggest otherwise as the ‘out’ campaign continues to do so is disingenuous. Trade agreements are enormously complex and take years to negotiate so what do we do in the meantime? We may still be a major economy and, countries would still want to trade with us, but there’s no reason to think we’d get beneficial treatment just because we’re the UK, unlike the benefits which we now have from trade deals the EU has negotiated which account for 84% of our exports. To suggest we’d sign numerous deals at the drop of a hat the minute we were to leave is quite frankly fanciful.

How would Britain be treated if we remain/ leave?

TS: If we stay I don’t envisage us being treated any differently to how we are now. I think it’s possible our relations will improve considerably because the antagonistic nature of our relations with the EU which has been ongoing for many years will be substantially reduced. If we leave I can only see the UK being increasingly marginalised with ever decreasing influence on EU affairs. It’s naïve to think otherwise.

Are there any questions you would like to ask the Leave campaign to answer in relation to British manufacturing and engineering?

TS: Yes, I’d like to ask them given the positives of EU membership which we currently enjoy and the proven economic benefits that have accrued can they give me any scenario in which leaving would be better for growth, jobs and our standard of living?

The official Leave campaign were offered the opportunity to respond to any or all of the above questions and responses but no replies were received.