Well I ended last week discussing a political issue, so I thought I’d start this week discussing another political issue.
And the amazing result for UKIP in the European elections has certainly given us all food for thought. It might, of course, be a “mid-term protest vote” but if so, it’s a very LARGE protest vote and certainly focuses the mind on the potential implications if we were to leave the EC.
A bit of historical perspective
Our membership of the EC is one of those subjects that most definitely seems to polarize opinions. But for some people, there’s a real battle to balance out what they see as the benefits of membership and some of the less attractive practical implications. I think it’s worth remembering the original vision of the EC: a common market for goods and services and people.
I always felt that the benefit for the UK of the free movement of goods and services would outweigh any increase in immigration from other EC countries. I’ve worked with a lot of large, international businesses over the years and I’ve often been told that one of the most important reasons non-EC businesses choose to set up in the UK is because it gives those businesses access to the free European market.
But the problem is simply that the principle of the free movement of people is all very well in principle, but it completely ignores the practical effects for the residents of any country when the free movement of people means that there is more immigration into the country than emigration. The benefits of living and working in the UK as well as our tolerant society means that we the net balance is always more people immigrating to the UK. And at some point, the well-being of the citizens of any country means that their livelihoods are put under threat when there simply aren’t enough jobs and other resources to go round.
And let me make this quite clear: I have no problem with sensible levels of immigration into this country. I don’t even mind if immigrants have to claim benefits at some point. Everybody needs help at some point in their lives; that’s the purpose of our benefits system.
But we can’t go on with an open door policy that allows people to move here without some level of control. We live on a island with limited space and resources. We’ve also a strong sense of our national identity, whether we live in Wales, Northern Ireland, Scotland or England and some feel that the constant influx of people from other countries threatens our identity. That may or may not be proven in practice, but the perception of a threat to our national identity is, in itself, important.
So what’s the alternative?
The interesting thing about the votes is that the share of nationalists votes in many EC countries was very large. The incredible result of the Front National in France shows the extent of nationalism in one of the founder members and core members of the EC. So for once, it’s not just the British standing on the sidelines saying “non”.
My view is that if the EC is to survive, then it needs a rethink. The free movement of goods and services makes absolute sense. I understand that about 40% of UK exports go to Europe, so it’s am important market for UK businesses. And the benefit of remaining in the EC is that it is easier for us to attract inward investment. But there must be some reform of the principle of the free movement of people. Otherwise individual countries will simply take things into their own hands and simply decide to leave the union.
And what about VAT?
Last week I blogged about the implications for Scotland should the Scots vote for independence from the UK and lose their membership of the EC. And of course, the same issues would arise for the UK if we left the EC. Trading with other countries in the EC would become more difficult with the re-introduction of national barriers and our withdrawal from the single market. However, with improvements in logistics and online systems over the past 20 years, import and export procedures would probably be less cumbersome. And I suspect that some form of Europe wide trade facilitation will always exist, such as the EFTA, which we could join.
But VAT itself, as a tax, would probably be retained. And there are some very good reasons for this:
- As a sales tax, it’s one of the most lucrative sources of tax revenue for the government.
- Because of the way the tax is structured, it’s self-policing and therefore easier for HMRC to administer.
- I understand that the cost of administering and collecting VAT is about 10% of the cost of collecting income and other direct taxes.
So, my guess is that we’d retain VAT in its present form, although freedom from EC principles would enable the government to change certain rules to ensure that the tax is more closely aligned to political policies. This could be a good or a bad thing, depending on your perspective. But it would enable governments to change tax policy to reflect popular demand, for example the re-introduction of the zero-rate for certain goods or services, while introducing a higher rate for other goods and services to fill the revenue gap.
Either way, the events of the past week have certainly focused our minds on the real possibility of leaving the EC. Whatever your political perspective, it’s clear that the next few years in politics will be interesting. However I suspect that VAT is here to stay for the foreseeable future.
Marie
May, 2014