Back to the future on the edge of Europe

Calvin Jones examines the pros and cons of EU withdrawal for Wales

There is a strong possibility that within the next five years, Wales might find itself within a political context more reminiscent of the 17th than the 21st Century. We could be part of a country that stops at Hadrian’s Wall. We could be outside – and perhaps even antagonistic to – all the European structures that matter.

In the first referendum that will determine this scenario – in Scotland this September – Wales has no voice. In the second, on membership of the EU (if it happens) we will have a minor one. Both votes of course have implications for Wales. Any vote to rescind the UK’s membership of the EU would change the face of Wales immeasurably.

Wales in a world of referendums


Tomorrow: Adam Ramsay examines the interconnections between next month’s EU election and Scotland’s referendum in September.

Thursday: Gerry Hassan provides an account of the devolution contradictions of Scottish Labour.

Friday: Walter Humes asks whether Scots Tories can return from the margins of political life.

Saturday: David Torrance on the curious case of the SNP’s shift from ethnic to civic nationalism.


Economic drivers are of course central. Much is often made of Wales’ openness to international trade. In 2013, Wales exported around £22billion of products, and around £10 billion of them to the EU. Overall that was about a fifth and a tenth of our economic output respectively.

And this ignores our intermediate products that leave Wales for other parts of the UK to be finished in, and exported from, other UK regions – for example from Toyota’s engine plant on Deeside, or from Tata’s Port Talbot works. Once outside of the EU, companies in Wales and elsewhere could be faced with an array of complex barriers and costs to trade with EU nations – in some cases involving import duty, in others regulations on ‘conformity’ and quality.

Of course, less than half of Wales’ trade is with the EU. There are export growth areas for Wales outside – for example, in the Middle East and China. There may also be benefits for companies in Wales that arise from stepping outside the EU – for Tata Steel, for example, there may be lower energy costs when freed from the EU carbon trading mechanisms (although this is by no means certain). For other companies, there may be lower levels of regulation and bureaucracy.

The key thing to remember here is that Wales is small – our main exporters are a select bunch – Tata, Airbus, Ford, Dow Corning and a few others. It is the responses to EU exit by individual countries and even individual executives that would matter, and this is unknowable. One suspects the attitude of Tata and Airbus (or rather the European Aeronautic Defence and Space company) to future investment in Wales might be very different.

It is not just the fact, but the nature of exit that would matter. A friendly wave goodbye, with the UK moving in next door with Norway and Switzerland in the European Free Trade Association, raises a different prospect than an acrimonious, drawn out divorce with the EU slamming the door on the UK as it leaves.

It is not just economic performance that would be affected, but social policy as well. One would have to hope that exit occurred after the 2014-2020 structural fund period, safeguarding the £1.7 billion earmarked for Wales over the next seven years.

Outside of industry and urban Wales the impacts of EU exit would, if anything be even starker. The Welsh countryside is a heavily subsidised landscape, and much of that subsidy comes, albeit in changing form, via EU systems that would cease to apply after exit. EU CAP payments account for the majority of farmers’ incomes in Wales and shape our countryside in myriad ways. Through direct payments, the Rural Development Plan and other mechanisms, rural Wales will receive at least £250 million per annum from the EU between now and 2020, with support (at a perhaps lower level) continuing far beyond that.

Many will of course rightly point out that EU subsidies are of questionable additionality and worth, certainly in effecting deep economic transformation of town or country. If previous evidence is to be believed, such funds may enable or swell existing, ameliorative interventions. However, so far they have done little to make Wales more holistically ‘competitive’.

Wales might benefit from the cold splash of water that EU withdrawal would comprise, forcing us to look more deeply and urgently at our problems, opportunities and resources.

Stock would, of course be taken under a very different regulatory framework. UK versions of employment and human rights. Environmental and other legislation might have considerably different implications for Welsh companies, employees, citizens (well, subjects) and indeed landscape. The EU Water Framework Directives and Habitats Directive, to name but two, strongly influence the management of our countryside. Their replacement with regulations perhaps less onerous or rigorous – delete according to taste – might see us with a very different landscape and seascape. Barrage anyone?

The issue for Wales is that any decision on EU membership for the UK – or the rump of the UK – is not made in a political vacuum. The shape of the Westminster government takes on a far greater level of importance in the absence of the EU – for environment, for energy, for social policy and for the labour market – and this holds even in the face of Silk and increased devolution.

For fifteen years regional policy and the ‘North South Divide’ has been of marginal interest to Westminster governments of both stripes, at a time when the EU has shown a deep interest and involvement in ‘territorial cohesion’.  In the (perhaps unlikely) instance of a Scottish ‘Yes’, the electoral requirement for Westminster to coddle its poorer cousins, though infrastructure development or, via the de facto regional policy of welfare, will be diminished further. Under a coalition-run England, it has already diminished significantly, with regional development funding cut by more than half.

Depending on your political prejudice, the above could be cast as the making or the breaking of Wales. But any forging of a new land would be a painful, prolonged process. In terms of GVA per capita, London is over twice the Welsh average. Inner London (commuting impacts accepted) has five times the GVA per capita of West Wales and the Valleys. The UK is already amongst the most regionally unequal of EU countries. With transport, research, defence and other spending already biased considerably towards the rich core, there is little sign of significant, sustained convergence.

Outside the EU the solution for the ‘problem regions’, the pinprick of devolution aside, would be largely British – based on distinct Anglo-Saxon notions of competitiveness, innovation and enterprise, of striving and shirking, across both town and country. The costs of any transition would also be significant, perhaps chaotic. In the long run, its might be better for Wales or it might be worse. Whichever way it would be very, very different.

Professor Calvin Jones is an economist at the Cardiff Business School.

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