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How to respond to UKIP

6 May 2013 By Hugo Dixon

The UK Independence Party will not come close to winning Britain’s next general election. The populist anti-Europe, anti-immigration party may not even win a single seat, despite last week’s surge in English local elections where it won nearly a quarter of the vote – running a close third to Labour and the Conservatives. That’s how the maths of Britain’s first-past-the-post voting system works.

Nevertheless, the rise of UKIP could have profound consequences for British politics and business – in particular, for the UK’s relationship with the European Union. This is because UKIP is mainly taking votes away from David Cameron’s Conservatives. A calculation by Sky News suggested that, if the local election results were translated into a general election, Labour would win an overall majority. Even though UKIP might win no seats itself, its popularity would damage Cameron’s prospects for reelection in 2015.

A key question will be how the Conservatives respond to this challenge. The party’s right-wing is already advocating a shift to the right to prevent more defections to UKIP. David Davis, who lost out to Cameron in the battle to lead to Conservatives in 2005, advocated an early referendum on whether Britain should quit the EU. Cameron has promised such a plebiscite but only after the next election – and implicitly only if he wins that election.

Other Conservatives will be arguing that it will be folly to tack to the right and leave the centre completely open to Labour. Holding a referendum on Europe before the election is not even practical politics, as the Conservatives are in coalition with the pro-European LibDems who oppose such a vote.

British business, which has a vital interest in how this debate progresses, should make clear that it wants the government to stick to the centre. It will not help the economy if there is a hard shift to the right on either immigration or Europe.

Look first at immigration. The economy benefits from having a moderately open approach to foreign workers – both in high-skilled and low-skilled sectors. Finance, information technology and, yes, plumbing are among the industries where Britain gains from imported skills. Immigration helps industry thrive and keeps costs down.

Within the EU, there is freedom of movement of labour – with the exception of Romania and Bulgaria, where the last controls will be lifted at the end of the year. This is a benefit too to British, who are free to work anywhere across the 27-member union. Immigration from the rest of the world is much more controlled.

There are worries, fanned by UKIP, about foreigners coming to Britain to enjoy free education, health care and benefits. But these are exaggerated. Immigrants tend to be younger, better educated and more economically active than natives. For example, a typical immigrant from Eastern Europe is 59 percent less likely to be on benefits than a British citizen, according to a study by the Institute of Fiscal Studies.

Immigration is therefore in most cases a good deal for Britain. And where this is not so, the answer is to make it harder for recently-arrived immigrants to get access to benefits rather than to stop immigrants who genuinely want to work.

Now look at Britain’s relationship with the EU. The economy benefits hugely from being part of the single market, which accounts for nearly half its trade. The City of London also gains from having a hinterland for its financial services. None of this is to suggest that Britain doesn’t also need to trade with the rest of the world. But Europe is a large, rich market on its doorstep.

That said, the EU is far from perfect. The economic model has been based too much on protecting people and companies from competition and not enough on boosting enterprise – as parts of the euro zone, in particular, have discovered with a vengeance in recent years. This isn’t just bad for the euro zone; it’s bad for Britain too.

The UK, therefore, needs to put its weight behind a campaign to make Europe more competitive. Although most of the work needs to be done at a national level, there are three supranational priorities.

First, the single market needs to be completed, especially in services, where Britain has a comparative advantage. Second, there needs to be a big push to cut free trade deals between the EU and other blocs, especially the United States. Third, there should be a drive to create vibrant capital markets, based in London, to take the strain off Europe’s dysfunctional banking system.

To be fair, Cameron started preaching some of this agenda in his European speech in January. But he also gave the impression that he wants to opt out of some European policies – a strategy that would reduce his chances of negotiating reform with other national leaders, even if it appealed to his right wing. He also implied that not much would happen before the general election. But the sooner reform starts, the better.

Part of the problem with acting sooner is getting the LibDems on board. But there might be a way of doing that. Why not focus on competitiveness now – something the LibDems ought to be able to sign up to – and leave any discussions on opt-outs until after 2015? Such an approach should certainly appeal to most of business more than tacking to the right in an attempt to negate the challenge from UKIP.

 

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