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This article was first published in the June 2016 UK edition of Accounting and Business magazine.

It is all about the free trade area: the European Single Market is vital and it is materially undervalued by those seeking to leave the European Union (EU). That is the key assessment that Carolyn Fairbairn, the director general (DG) of the CBI, would like the British electorate to take on board in the run-up to the referendum on EU membership.

Of the 190,000 businesses that the CBI represents, 80% are in favour of the UK’s continuing membership of the EU. Since becoming DG in November 2015, Fairbairn has prioritised discussing Europe with both CBI members and Cabinet ministers. ‘The main advantages of the UK staying in Europe are trade and investment,’ she says. ‘The benefits of the single market for the majority of British businesses are really significant.’

Guarantees of tariff-free trade with uniform regulations – which UK businesses influence – make life easier for UK exporters. This free trade provides predictability and the absence of a threat of erection of new trade barriers. While Fairbairn says that ‘the first and major benefit is this access to a massive single market’, she adds that another key benefit of EU membership is the way it sustains inward investment. ‘In the UK we have been very successful at attracting inward investment, which sustains a huge number of jobs in this country. We know that the UK subsidiaries of multinationals are able to claim a larger share of their parents’ investment through being in the EU.’ As many as 72% of inward investors say its membership of the EU was a main reason for its UK investment. 

‘Deeper and fairer’

The CBI is not uncritical of the EU. Fairbairn says that in terms of disadvantages, many of her members tell her that there is too much regulation, particularly straying too far into health and safety and the labour market. The CBI respects the views of all its members – a small minority of whom want a Brexit;  the majority wish to remain. ‘They are frustrated at the lack of focus on competitiveness and completing the single market, though they do see some progress in the recent renegotiation [by Prime Minister David Cameron.]’ The work of the European Commission (EC) to build what it calls a ‘deeper and fairer’ single market is continuing through a series of measures in 2016.

‘When they weigh it up 80% – the vast majority of our members – believe advantages significantly outweigh disadvantages and we should stay in, while about 5% believe we should leave.’ The rest were unsure. Fairbairn is emphatic that the CBI members’ views are in line with other business surveys. Opinion polls of the electorate are nowhere near as clear cut.

For Fairbairn, the business and economic arguments in favour of staying in the EU are resounding, although she acknowledges other issues: security, immigration and sovereignty. She says: ‘For our members, it is important people do understand the business case and can factor it into their overall assessment.’ The CBI is clear that it is there to make the business case alone without straying into other areas. 

Talking mainly to Number 10, the Cabinet Office, Treasury and business ministers, Fairbairn says she was struck by how alive senior politicians are to the business and economic issues. ‘We have been able to help provide some of the evidence to clarify some of the issues. The evidence needed building, and those are the conversations I have been having.’

UK’s influence

Fairbairn says that she has noted how the tone of the debate on the EU is changing, with a greater focus on competitiveness and completing the single market. ‘For example, we took the equivalents of the CBI from France, Germany, Italy, Spain and the Netherlands to meet the prime minister. They were able to make the case to David Cameron that the UK has been extremely influential – and is growing in that influence – in arguing for the EU to be more competitive. There is a long way to go, but this referendum process has pushed those issues up the agenda. If the vote is to remain, this is the start of a stronger engagement on making Europe more competitive.’

She says that business is ‘not compelled’ by the Brexit argument of free trade and friendly co-operation. ‘Business knows there is no free trade with the US; instead, there are tariffs on 50% of trade. We know trade deals take an enormously long time; the Canada-EU trade deal is still not completed. 

‘The difficulty of free trade deals has really hit home to me. It is too simple to say that because we are a major power we will get a deal. In some ways it is because we are a major power that we may face resistance. Assuming we could get trade deals is one of the biggest fallacies of the case to leave.’

The final argument for the CBI in its ‘remain’ stance is the benefit of freedom of movement of labour, although Fairbairn says that ‘there is tremendous sensitivity to the social concerns’. But many businesses, especially those facing skills shortages such as the digital and technical sectors, appreciate being able to bring in skills while the UK builds the skills base it needs through initiatives such as apprentice schemes. ‘Many businesses are concerned about the implications of limiting migration,’ she says.

An analysis for the CBI of the economic stay-or-leave scenarios by PwC suggests that the UK economy would be » permanently smaller if the country were to leave, even under the most optimistic set of scenarios. And their predictions for the short-term shock of exiting are particularly gloomy, suggesting that an exit could cost up to one million jobs by 2020 – a view that was in line with later Treasury forecasts, although both were disputed.

Seven degrees of separation

While there may be differences in attitude to the EU between small and large concerns, 71% of the SME business members of the CBI are in the ‘remain’ camp. Fairbairn suggests that smaller businesses that would prefer to exit the EU may not always think through the seven degrees of separation. ‘In their value chain, to what extent are they dependent on an exporter?’ she asks.

As DG of the CBI, Fairbairn is in no doubt the British economy would survive outside the EU with the UK’s great businesses driving forward the economy. However, in her discussions over the past few months Fairbairn has been struck by the increased risk of growing protectionism. ‘We have taken for granted the extraordinary free trade arrangements we have in Europe. We can make no assumptions about a continuing free trade agreement.’

Equally, she is clear the EU is easily the preferable route. ‘How could we possibly do better than free trade within the EU and the continuation of the 53 trade agreements across the world that we have now?’ 

Peter Williams, journalist