03-05 - toscafund discussion paper - brexit iii

TOSCAFUND Discussion Paper

June 2016 EU Referendum Part III: Even MORE further Out

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� This is the third instalment of our research output ahead of the EU

referendum.

� As was the motivation for Part II, this instalment touches upon a

variety of themes, raised over recent weeks concerning “The Brexit

debate”. They have been written only where I have had a sense that

something has gone unsaid, been poorly argued or has been

misrepresented. And sadly, rather than the degree of

misrepresentation lessening, it has to my mind at least worsened

since Part II.

� These vignettes can be read in any order and covers an assortment of

themes.

� One vignette discusses how EU enlargement has seen one particular

accession nation, Romania, export its prime age adults as it has grown

its sheep population, a development at odds with the ambition

claimed that membership of the EU would strengthen and advance

the internal markets of new joiners.

� Another short piece attempts to address concerns that Brexit would

compromise our defence capabilities, with another challenging the

idea that the UK economy needs to be involved in the low-value

added industries being widely protected across the EU.

� The remaining vignettes and ‘blue boxes’ introduce the behavioural

psychology behind the reluctance of some to venture into a post-EU

world but the game-theory of why this is Best for Britain.

� When I penned the original research back in February I was confident

that leaving the EU at this opportunity was in the UK’s best future

economic interests. I can only say that my views have strengthened

since then. Indeed, all I have heard and read from the Treasury, the

IMF, OECD, the US President and others with skewed subjective

agendas has only encouraged me in the belief that Brexit is in our

national interest.

� The EU is not the elite successful Club it is being portrayed as. It is a

structurally unsound grouping within which there are nineteen

countries fused within an ever weakening euro-zone. If we do not

‘Leave’ at this opportunity, we will come to realise that it comes with

considerable economic and financial costs.

Author:

Dr Savvas Savouri

Contact information

Toscafund Asset Management LLP

90 Long Acre

London WC2E 9RA

England

t: +44 (0) 20 7845 6100

f: +44 (0) 20 7845 6101

e: [email protected]

w: www.toscafund.com



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Contents page

1. The EU: Where mutton is dressed as lamb .................................................................................................................. 3

2. Beating steel drums ............................................................................................................................................................. 5

3. Brexit: In my Defence ........................................................................................................................................................... 7

4. Welcoming of our tax disharmony when outside the EU ..................................................................................... 9

5. Whose case exactly needs to be answered? In my defence too... .................................................................... 12

6. Why Brexit is a better bargain for us............................................................................................................................ 14

7. Good trading practices ..................................................................................................................................................... 16

8. Thinking twice about the numbers ............................................................................................................................. 17

9. Euler never quite expect certain changes ................................................................................................................. 19

10. The referendum – Voting to Stay or Leave, and a broken nose ........................................................................ 22

11. The Truman Show ............................................................................................................................................................... 23

12. Seeing Europe in 2020 ...................................................................................................................................................... 26

13. The disgrace of not disqualifying oneself ................................................................................................................. 27

14. Wacky European Races ..................................................................................................................................................... 28

15. Fear the real serpents not imaginary sharks............................................................................................................. 30

16. Valued migration points ................................................................................................................................................... 31

17. Trigger happy contracts ................................................................................................................................................... 33

18. Staying ‘In’ – Dear, oh financially dear ........................................................................................................................ 35

19. The insanity of the ECB ..................................................................................................................................................... 37

20. Condemnable damned economic lies ........................................................................................................................ 38

21. ‘Remain’ simply won’t wash ............................................................................................................................................ 40



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1. The EU: Where mutton is dressed as lamb

On January 1st

2007 Romania and Bulgaria acceded to the European Union, taking the number of sovereign

nations in this ‘elite’ group to 27. With the entrance of Croatia, membership has reached 28 with a number

still eager to gain entrance; including Albania, Macedonia, Montenegro, Serbia and Turkey. Against this

keenness to join, it might seem strange that there are many like me encouraging we leave.

I wish to spend a moment considering one development in Romania since it joined Club EU which I feel

strengthens my case that the UK should cancel its own membership; happily making way for a nation on the

waiting list.

For decades, and on almost every measure, Romanians languished in European wealth tables, their

performance held back by an over reliance on low value added agricultural employment. We were encouraged

to believe that Romania’s economic development would be hastened by joining the EU, benefiting Romanians

and according to the reasoning being presented benefiting nationals across the wider European Union. We

were told that the more rapid Romania’s development, the more its economy would buy goods from the rest

of the EU and the slower the pace at which it’s prime age adults would migrate to wealthier parts of the Single

Labour Market. Some in the UK were so NOT convinced by this that they insisted on a seven year ‘opt out’ – or

more formally a transitional arrangement – which, as we know, expired on January 1st

2014. Let me make

clear that I have no objection to economic migration and it is not the Single Labour Market which most

frustrates me about the EU. What most frustrates me is that what we are told we get in the form of positive

externalities from our EU membership is not in fact what is actually delivered. And Romania’s wolf in sheep’s

clothing is just one instance. Let me elaborate.

Since 2010 the number of sheep in Romania has risen, with estimates suggesting there are now almost eleven

million being husbanded across the country, one sheep for every two Romanians (the UK’s sheep population is

around twenty three million; or one for every three of us). Now, remember Romania is a country which we

were told would use its EU accession to become less agricultural in its push to advance itself and in turn to

more fruitfully (sic) engage with other EU nations. Why then this rise in sheep numbers over a period when

the human population has fallen? My suspicion, indeed my conviction, is that Romanians have jumped on the

EU’s lucrative farming subsidy bandwagon; exaggerating the size of its agricultural sector at the same time it

elevates food prices.

Chart 5: Romanian sheep population Chart 6: Romanian population vs. formal registrations to

UK

Source: Romanian National Institute of Statistics (Data 1990-2003), Eurostat (Data 2006-2015), Toscafund – Note: verticals denote accession and transitional

I came across the fact that Romania’s sheep numbers are increasing sharply from a news story concerning the

protection of bears from sheepdogs; protecting them that is, so that they can be hunted by Romania’s elites.

For not only is Romania overrun by sheep, it has a great many bears, who its plutocrats like to shoot, and pay

handsomely for the privilege. Now with bears attacking sheep, Romania’s shepherds added to their sheepdog

numbers to a point that their national Parliament, many of whose members ‘enjoy’ bear hunting, set a limit on

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how many canines they could each have. In response, many thousands of shepherds herded themselves onto

the streets of Bucharest to demonstrate, the scenes turning ugly and tear gas being used. Just in case we have

forgotten, this is all happening in a country almost a decade into its EU membership, which it joined

supposedly to advance itself and in turn be less of a burden on its fellow EU members.

Let me end by saying, I have no doubt that were Albania et al. to accede to the EU, they too would jump on

the subsidy bandwagon, it is only fair we make room for them by getting off.



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2. Beating steel drums

A great deal has been written on the unfolding events with Tata steel and, in particular, its considerable works

around Port Talbot. Amongst all this chatter, far from all informed, blame is being apportioned widely and

manifold ideas for potential solutions volunteered. We have variously been told it’s the fault of the Chinese,

the Americans, the EU, our own Government and the Tata family itself. Arrayed alongside those demanding

Tata’s UK operations are (re)nationalised are those insistent that market forces should not be interfered with.

Having already weighed my two-penneth into the issue I wish to only add one last observation, if I may.

Chart 9: Service sector vs Primary metals

Chart 10: Export values compared

Source: ONS, Toscafund

It is the nature of steel-making to be highly cyclical as indeed it is of all industries where the product is traded

globally and ‘commoditised’. There are periods of exceptional earnings strength only to be punctuated by

sharp reversals, and we are in just such a particularly downside episode now. And this cyclical reversal is

compounding secular issues, such as steel being increasingly substituted out of car making, or an economy

elsewhere building new capacity or devaluing it’s currency to more strongly compete. To repeat, we are

talking here of making commoditised traded goods which we are also trying to sell in competition with nations

whose labour is, quite frankly, cheaper than ours because they are behind us in their economic development,

nations which rather than us envying would themselves be more than happy for roles to be reversed.

The question we need to ask ourselves is do we really wish to see OUR economy involved in such low value

added industries when we have so many sectors with a global comparative advantage? There is our car

making where build quality and prestige is almost peerless. Indeed, the appellation ‘Made in Britain’ extends

across a multitude of goods and services where we have only a few rivals, sometimes in fact none; think of

Scotch whisky and Rolls Royce. We have world class universities; ‘factories’ turning out education and selling it

to all corners of the world. These student ‘customers’ come to our shores and spend generously, but unlike

short-stay tourists, they spend for three or more year on rents, tuition fees and other living needs.

Those hankering for the old days of smoke-stack industries are often the same who insist on ‘clean tech’ and

environmental best practice, failing to see the contradiction in these inconsistent demands. Now, what I am

about to write will not sit comfortably with some but I will write it all the same; there is nothing strategic,

laudable or worthy about steel making or the manufacture of other commoditised products. True, the workers

employed are often highly skilled. It is no less true to say they are invariably expert in techniques which limit

their mobility; mobility to relocate across the country and mobility to move between sectors. This immobility

exposes these workers and their communities to the vagaries and vicissitudes of a single industry; sometimes

leading to a scorched earth outcome when that industry suffers a deep reversal. Contrast this with Britain’s

growing excellence in business services not simply across London but beyond it. In these sectors, skills are

transferable across disciplines, and experts in these can perform them quite literally anywhere across the UK,

with this flexibility providing much welcome freedom in lifestyle choice and national economic rebalancing.

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Obama’s far from beautiful mind on Brexit

Into the lame duck period of his Presidency Barack Obama chose to wade into the UK’s EU referendum

debate, part plaintively and part threateningly on the side of IN. He made the usual claims that the UK was

stronger in the collective of the EU and he voiced the, now familiar, threat that negotiating new trade deals

would prove extremely protracted. In fact he went as far as arguing that if we voted for Brexit we would not

get a trade deal comparable to what we have with the United States until as far out as ten years. Now that is

some drawn-out prospect. Scary? Yes. Credible? Most definitely Not. In fact each time I hear or read that

establishing ‘new’ trade deals post Brexit would involve protracted negotiations and economic hardship

across Britain, I simply turn to the “Beautiful Mind” of the Noble laureate and brilliant game theorist John

Forbes Nash.

From his Princeton office Professor Nash conjectured on the outcomes of events when there was

behavioural uncertainty. He concluded that as long as one was aware of the interests and motivations of all

participants, it was possible to anticipate the outcome of “the game”. Sadly John Nash and his wife were

killed twelve months ago in a motor accident in New Jersey, and so we cannot call upon him to share his

genius on the matter of our looming referendum. I will, however, try to pay homage to his behavioural

reasoning in a few lines.

The UK trades widely and has counterparties with which it runs a trade deficit, and with others where it

records a surplus. Assuming we will not be recalcitrant in seeking to replicate trade agreements let me reflect

on the post- Brexit behaviour of nations with which we either run deficits or surpluses in relation to the

balance of payments.

Were a nation earning a surplus from trading with the UK, one can hardly expect it to prevaricate in

establishing a trade-deal which perfectly imitated what we have now. Why should it when it would clearly be

the net loser. What then of nations which run deficits. In this case they buy more from the UK than we buy

from them. Would they drag their feet in creating new trade deals? The answer is most definitely NOT. Let

me reason why. Were a nation importing from the UK we can assume that what it was buying was either

unique to the UK - positional products with an exclusive UK appellation – or goods and services available

from other nations but which we were particularly competitive in providing. Why would a nation restrict its

access in either case? Were it to put up trade and customs barriers to goods and services which were unique

to the UK and which it needed, it would suffer. Were it to put up trade and customers barriers to goods and

services which whilst not unique to the UK were most competitively available from it, it would have to find a

less competitive substitute, and so would again suffer. This very simple Nash reasoning is why trade threats

from Barack Obama and others do not come from ‘Beautiful Minds’.

Welcome, surely, to those who wish to see closed north-south and other such ‘divides’. For those harking back

to Britain’s ‘glorious industrial past’, my response is nostalgia isn’t what it used to be.

I would also ask those encouraging us to go backwards for our future whether they would like to work in blast-

furnaces or steel mills? Before answering they might first remind themselves of the words of William Blake

where he extolled building something better in the place of “dark satanic mills”.

What of our EU membership in all this? Well, in the services the UK excels, our customers are truly inter-

Continental and the freedom to perform our roles is not conferred by EU ‘trade deals’ but by advances in

teaching, technology and transport. We have it in our hands to improve this trinity of T’s and can do so in a

more determined way outside the European Union.

TOSCAFUND June 2016

3. Brexit: In my Defence

Just one of the criticisms being levelled at

by being a member of the European Union. Before I con

in regard to our territorial defences.

Now, as far as I am concerned the referendum on June 23

nation EU, and will make no mention of the UK

Treaty Organisation (NATO). The reality is that the latter not the former is the over

Union which we have long been an important part of, and should most definitely remain IN.

Lest we forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our

entry into World War II on September 3

we were also inaugural members of a post

nations and France.

Six months later this became the Western European Union

addition of the United States, Canada, Portugal, Italy, Norway, Denmark and Ic

know as NATO (currently covering one billion of us across twenty eight sovereign states).

Significantly, the first NATO Secretary General was a Briton, Lord Ismay, who at the very outset stated quite

bluntly that the organisation’s goal was

(West Germany would join in 1955, although under strict guidelines as to its military capabilities). No less

significantly France would begin withdrawing from the NATO superstru

leaving almost entirely in 1966, only quite recently returning on April 3

Map 2: Current NATO members

Source: Wiki Creative Common License

Whilst nations have come and others gone (temporarily) from NATO, the UK has stood as a stalwart, as well it

should have, and as well it should remain. Not that all agree on this latter point. In fact there are a great many

enthusiasts for our continuing EU membership who argue we should instead be considering EXITing NATO. Let

me make another point clear. Our belt and braces approach to national defence has long been to be in NATO

whilst also possessing an independent nuclear deterrent. Here again there ar

membership and the ‘protection’ it provides, who demand we denuclearise our submarine fleet. Such strident

“anti-Tridenters” in fact fill the ranks of one extremely pro

party. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of

our membership in the European ‘Community

Discussion Paper

EU Referendum Part III: Even MORE further O

7

Just one of the criticisms being levelled at “Brexiters” is that they are ignoring the security provided to Britain

by being a member of the European Union. Before I consider unconventional threats, let me dismiss this claim

in regard to our territorial defences.

Now, as far as I am concerned the referendum on June 23rd

is only concerned with our membership of the 28

nation EU, and will make no mention of the UK’s continuing membership of the 28 strong North Atlantic

Treaty Organisation (NATO). The reality is that the latter not the former is the over-arching defence umbrella


forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our

on September 3rd

1939. With our signing of the Treaty of Brussels on March 17

we were also inaugural members of a post-war European defence block; our co-signatories the Benelux

Six months later this became the Western European Union’s Defence Organisation, and six months on the

addition of the United States, Canada, Portugal, Italy, Norway, Denmark and Iceland,



s goal was “to keep the Russians out, the Americans in, and the Germans down


significantly France would begin withdrawing from the NATO superstructure a decade after it was forged,

leaving almost entirely in 1966, only quite recently returning on April 3rd

2009.

Current NATO members

Source: Wiki Creative Common License



U membership who argue we should instead be considering EXITing NATO. Let


whilst also possessing an independent nuclear deterrent. Here again there are those enthusiastic of our EU

it provides, who demand we denuclearise our submarine fleet. Such strident

in fact fill the ranks of one extremely pro-EU Nationalist party and now lead another national

. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of

Community’.

ferendum Part III: Even MORE further Out

is that they are ignoring the security provided to Britain

sider unconventional threats, let me dismiss this claim

is only concerned with our membership of the 28

ing membership of the 28 strong North Atlantic

arching defence umbrella


forget Britain has regularly been in common defence pacts, the one in fact with Poland triggering our

1939. With our signing of the Treaty of Brussels on March 17th

1948,

signatories the Benelux

s Defence Organisation, and six months on the

eland, created what we now



to keep the Russians out, the Americans in, and the Germans down”


cture a decade after it was forged,



U membership who argue we should instead be considering EXITing NATO. Let


e those enthusiastic of our EU

it provides, who demand we denuclearise our submarine fleet. Such strident

EU Nationalist party and now lead another national

. Before I turn to unconventional threats, I would like to continue with territorial issues in the context of



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Think twice about that one vote

Having called upon the work of the Nobel Prize winner Professor John Nash I wish to turn my attention to

another distinguished Nobel laureate, Professor Daniel Kahneman.

Much like Nash and his efforts Kahneman has significantly advanced the study and understanding of decision

making; the latter all the more, thanks to his best selling work “Thinking, Fast and Slow”. His work has

blended psychology and economics, and explored how our second-nature heuristic responses can result in

errors of judgment, or what he termed cognitive biases.

If I had to summarise Professors Kahnerman’s brilliant work in four words they would be “measure twice, cut

once”. And if I wanted to provide a single illustration of this it would be by asking this brain teaser; If the

total cost of buying a bat and ball came to one pound and ten pence, and the bat was one pound more than

the ball, what did the ball cost? In the vast majority of cases when this question is posed the quick fire

response is ten pence, followed by a look of derision that such a simple piece of arithmetic be considered a

challenge. On those producing this erroneous answer being told that five pence is in fact correct many will

express disbelief until they are persuaded by the revelation that one pound and ten pence added to ten

pence sums to one pound twenty pence.

What is the relevance of this to the referendum on June 23rd? Well, for most of us the instinctive or heuristic

response to the question of whether we leave the European Union is “NO”. I experienced this personally

when a colleague asked me the question. His reply to my quick fire instinctive response was to ask me to

explain why I was convinced the net benefit made it sensible to stay. It was only on ‘Thinking Slow not Fast’,

about the issue of our membership did I realise “LEAVE” was the RIGHT ANSWER.

From March 1982 Argentina began to occupy the islands around the Falklands, before carrying out a full-scale

invasion of the main island itself. Back then the UK not only went it alone, all the way down in the South

Atlantic, but our Task Force found itself facing military hardware sold to Argentina by a European ‘Community’

partner.

British forces have, of course, been active since the Falklands War. Their involvement has, however, never

been under an EU banner but under other coalitions, including but not exclusively the UN and NATO; but to

repeat never the EU.

Let me now turn to the unconventional threats we have and continue to be exposed to, and consider what

protection our membership in the EU has provided in the face of these.

The UK mainland is not unfamiliar with terrorist acts. When it has faced such threats, it has dealt with them

unilaterally and stoically. As for the protection against unconventional threats afforded by the European Union

we have sadly only recently seen terrorist attacks organised from one EU member state into another, hardly

an endorsement of collective security against unconventional threats. One can only guess at the protection

afforded by NOT BEING IN the now discredited Schengen Area.

The point I wish to close this short vignette with is that in departing the European Union the UK can both build

on its membership of the 53 nation Commonwealth (as discussed earlier) and its membership of a 28 STRONG

NATO.



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4. Welcoming of our tax disharmony when outside the EU

Let me attempt to link the incendiary documents which have COME OUT of Panama with why we should

COME OUT of the European Union.

I will not enter into the semantics of tax evasion, tax avoidance and tax management. What I will say is that

ever more progressive income tax rates promote ever more adventurous machinations to mitigate tax bills.

And since the wealthy have greater access to the tools of tax ‘management’ so tax is invariably regressive even

when formal income tax rates are ostensibly progressive.

As the number of self-employed has risen, ever more Britons have found themselves outside of the Pay As You

Earn (PAYE), system and their numbers are set to only increase. Against this backdrop, we can either focus

ever more tax-funded spending on capturing income tax or we can accept that there is a more “progressive”

way to progressively fund the State.

The United Kingdom is on the cusp of a devolution revolution. It should use this transformation to transform

its tax system by shifting away from income tax to spending based taxes; far easier to capture in our close-to-

cashless economy. The case for sales based taxation is all the more compelling if rates are allowed to vary

across the country and to differ according to the nature of the goods and services being consumed. For

instance we quite rightly exempt most off-sales food from VAT because not to do so would expose this tax to

the legitimate criticism of being regressive. Now as to why VAT is a flat rate across the UK, and across almost

all rateable items, is easy but extremely frustrating to answer; we have this blunt system because of the EU’s

desire for tax “harmony”. The reality is that as long as the United Kingdom remains in the European Union it

cannot restructure its sales tax system to improve the workings of the economy – rebalancing growth or the

efficiency and equitability of tax gathering.

Why is the VAT rate for a hotel stay, a restaurant meal or a theatre ticket the same in the swanky West End of

London as it is in beautiful Western Isles of Scotland? The answer is because the EU will not allow a distinction.

And yet, few can deny the logic of such differentiation. Why are luxury goods not charged at a higher VAT rate

than more modest non-discretionary items? The answer is because the EU will not allow a distinction. And yet,

few can object to the idea that such a difference would be merited on a host of equitable grounds. We are,

after all, in an economy where conspicuous consumption is the norm and where demand for many “luxury”

items is remarkably price inelastic. Indeed one is minded of the designation “Veblen good” – named after the

Norwegian economist Thorstein Veblen – where demand for certain goods increases with their price (an

advertising campaign even using the strap line “reassuringly expensive” to promote a certain beer).

As well as being memorable for being the year the UK made a now wise EXIT from the ERM, 1992 was when

the 10% “Special Car Tax” was halved from the sales of new cars. Having such a tax has considerable fiscal

merits. It is extremely progressive and pro-cyclical, providing the Exchequer with revenues when car sales are

strong which it can put aside for any manner of non-motoring spending since there is no reason why revenues

should be hypotheticated.

In short, to those who claim there is no reason the UK needs to depart from the EU to achieve its good

economic ends, my response is there are plenty. And one of the most significant is that the European Union’s

obsession with the harmonisation of sales tax means that the UK cannot make the transformational changes

to its tax system where it moves towards tax on spending and moves from a one-size fits all system which fails

to differentiate geographically – as it should – or by products (the EU’s VAT system is regulated by a series of

directives, the most important of which is the “Sixth VAT directive” - Council Directive 77/388/EEC of 17th

May

1977 on the harmonisation of turnover taxes).

Such is the EU’s dogmatic stance towards harmonisation, that one of the demands it made of Greece in 2015,

to release much needed rescue capital for its beleaguered economy, was to raise VAT rates which existed on



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islands close to the Turkish coast. That these hikes risked damaging the tourist industries on these islands,

faced as they are with an ever more competitive tourist market across in Turkey, seemed lost on the

homogeneity obsessed European technocrats. The obsessive focus on harmonising sales taxation is all the

more frustrating when one considers the heterodox corporation taxes across the EU, inviting corporate tax

inversion; a transfer of wealth around the EU’s sovereign states where the net effect is negative since it in

effect is a transfer which benefits the corporate structures exploiting the opportunities presented to invert

taxes.

Chart 11: Rising self-employment, numbers & %

Chart 12: New car sales value


In raising income tax, the UK can call upon around thirty million potential contributors; the number of those in

work. Whilst many of these are covered by the PAYE system an increasing number are self-assessed; the latter

accounting for 15% at the last count an all high in relative terms and still rising. Not only does self-assessment

allow for less transparency in what is ‘rightfully’ owed, it also involves ‘lumpy’ and ‘late’ revenues. The simple

truth is that when it comes to income based taxation we will have to spend ever more taxpayer pounds to

search out withheld taxes. If we, however, consider expenditure based taxation, the ease of collection and

universe of potential payers expands considerably; 35m overseas residents visiting the UK each year (of which

8m are business visits), with the number of foreign students in the UK currently c500,000 having risen on

average by 4% each year since 2010. Now neither tourists nor foreign students earn in the UK and so yield

little or no income tax. However their spending is undeniably generous, and made in quite visible and taxable

ways. To repeat I see no reason why the Exchequer should not harvest tax receipts, from both Britons and

‘visitors’, using ever more targeted sales-based taxes.

Chart 13: Non-UK Students in HEI’s

Chart 14: Tourism to the UK

Source: HESA, ONS, Toscafund

When we talk about economically motivated immigration or foreign students we sometimes fail to grasp the

widespread benefits these arrivals generate. We should recognise that their demand for housing supports

prices and rents and for owners and landlords lifts their fortunes and so too the exchequer. Moreover a great

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Top-up fees introduced:

capped at £3000

Impact of Browne Review: fees raised

to £7500-9000

Tuition fees introduced:

maximum £1000

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many of those who arrive enter from nations where they have left behind a left hand drive car and so become

part of the market for new or used cars “righteous” ones, again producing a welcome benefit to those whose

fortunes rely on car making or selling and to the tax man. For those of us with cars they also provide a

welcome secondary market when we come to sell. I could go on and provide instance after instance where

arrivals to Britain to work or study produce unambiguously positive net-benefits. And to repeat Brexit would

not herald the end to the arrival of either workers or students from overseas, or their valued contributions to

the Exchequer. What Brexit would allow is the UK to shift to ever more targeted, spending based taxation.

There should be no objection to shifting from taxes directed where money is earned and whose evasion can

become the privilege of the privileged – and so essentially regressive – to taxes where income is spent and

where levies can be targeted so they are progressive. And there should be no objection to the idea that

‘foreigners’ should contribute ever more to the UK Exchequer if they are doing so in the enjoyment of facilities

drawing upon British public services. In addition to raising Exchequer revenues from tourists and students

from overseas, a far more sales based tax system will allow revenues to be extracted from tax recalcitrant’s

such as those using ‘non-domicile’ or trust status to mitigate against their income tax liabilities. As for the idea

this would somehow discourage tourists or foreign students and their spending their ‘appetites’ are, I believe,

largely inelastic.

Quite frankly then, moving ever more to a sales-based tax system which varies both by the good or service

being consumed and where exactly this is happening can only be welcomed. This, however, can only be

achieved if we EXIT the absurd restrictions to achieve sales tax harmony demanded by the European Union.



12

5. Whose case exactly needs to be answered? In my defence too...

Our justice system places the burden of proof squarely with the prosecution; we assume innocence and only

pass a judgement of guilt if it has been established to a jury of our peers, beyond reasonable doubt (Ei

incumbit probatio qui dicit, non qui negat). We quite rightly would rather a jury made the error of acquitting a

guilty defendant than wrongly convict one who is entirely innocent. For, whilst these are both errors, we insist

on veering on the side of caution. The same incidentally applies in the ‘drug trials’ involved in the

development of new medicines; we would rather reject a potentially life improving, indeed life saving drug, if

there was the remotest chance it produced adverse side effects. You may well be asking where I am going

with this.

On June 23rd

we – the jury made up of the UK’s electorate – have to come to a verdict on our continuing

within the European Union. Now this vote – or rather ‘this trial’ – is being presented to us in such a way that

the burden of proof is on a verdict of OUT. In short, we are told it has to be proven beyond reasonable doubt

that “the UK has a better future outside the EU”. The prosecution case is hardly helped by the defence calling

upon “expert witnesses” claiming that the cost of food, energy, travel and mortgages will increase were the

UK to leave the EU. When the prosecution produce counter-arguments to challenge these claims it is told it is

conjecture and speculative and therefore inadmissible. The judge then demands that the prosecution’s case

be proved with factual evidence. When the prosecution replies that there is no precedent to use, only rational

economic thinking, the defence objects, claiming these arguments are no more than fanciful optimism. Rather,

however, than the judge overruling this objection on the grounds that the defence case could as easily be

considered fanciful pessimism, he chooses to uphold it. The prosecution is clearly up against what in the

vernacular is known as a ‘bent Judge’.

To further hamstring the ‘OUT’ case, the defence have insisted that the jury be presented with evidence

highlighting the undeniable historical benefits to the UK of having joined the European Economic Community

back in 1972. The judge should, of course, have declared this inadmissible because it is irrelevant to deciding

the merits of remaining ‘IN’. In fact, this is much like calling upon character witnesses in the defence of an

adult charged in some way who will testify that ‘he was such a nice boy’. Well, members of the jury that nice

well behaved vibrant EEC has quite frankly grown into a useless bully. I would also add that when the UK

economy has performed impressively during its time within the EEC and then the EU, some of this has been

circumstantial to our membership, not because of it. The same counter-factual argument applies to claims

that the UK would not have advanced its environment or social credentials but for its membership of the EU.

Let us be clear the UK is one of Europe’s least reactionary nations.

Now, whilst I am happy to rise to this challenge of making the ‘OUT’ case, I am frustrated by the “if it isn’t

broken don’t fix it” nature of the ‘IN’ defence. Put bluntly large parts of the European Union, and in particular

the euro-zone within it, are indeed broke; not simply figuratively but financially. Returning to character

witnesses, and those providing the EU with positive ‘references’, the reality is that most if not all are not

impartial and should have their supposed evidence dismissed as inadmissible since their facts are

contaminated, indeed by rights they should be charged with perjury.

I made the point at the beginning that the defence case for remaining in the EU puts the burden of proof

squarely with the OUT campaign. Now imagine for a moment that this crucial court-room drama began with

the UK outside the EU. Here it would be the prosecution burdened with the case we joined the EU (just as it

has tried and failed to prove in two trials in Norway). This is not a semantic difference but a very substantive

one.

The defence and prosecution would each call upon expert witnesses and ask them under oath how they saw

socio-economic, demographic and political events unfolding across the EU in the years ahead. Bear in mind

these are the very ‘experts’ who are being called upon to provide their wisdom on how much the youthful EEC



13

was a model and why the UK would suffer in the event it were to EXIT the much less flexible indeed infirm EU.

Also bear in mind all witnesses are under oath. When confronted with the direct question of how they saw

the EU performing over coming years, these experts would stutter, sweat, pull on their shirt collars, but finally

admit that the European Union’s future was not terribly encouraging, in fact had a very unsettling outlook. On

being pressed they would have to admit that for a nation like ours membership would not confer a great many

benefits, indeed that these would be outweighed by handicaps, restrictions and limitations. Being

interrogated further, expert witness after expert witness would have to accept that the EU had become a club

one joined were one a nation in need of a considerable economic and financial “leg up”, like say Macedonia,

Kosovo and Albania, not ones which already sat on the economic top table, like the UK, Norway and

Switzerland. With such admissions the jury could only side with the defence that membership in the EU from

that point onwards was best avoided, with even waverers accepting there was a reasonable doubt over the

merits of joining.

When we vote on June 23rd

we need to forget the vote is on continuing within the European Union and

instead imagine it is about joining from scratch; we must put aside what we have gained from being members

as a historic legacy, focusing instead on what the future annuity will be. Were we to do so I have no doubt

public sentiment towards out membership would be very different because the case for the defence of ‘OUT’

would be water-tight. This trial has, as already been mentioned, been performed elsewhere with the

Norwegian Jury twice dismissing the prosecution case for joining the European Union (1972 and 1994). More

recently on March 3rd

this year the Swiss prosecution dropped its case for Switzerland joining the EU (its

Parliament voting 126 to 46 to withdraw its long standing application for membership).

Another factor prejudicing the current trial is that the judge is not allowing the precedent from 1992, when

expert witnesses claiming the UK economy would suffer stagflation were the pound to leave the discipline of

the ERM, were discredited. On the issue of ‘expert witnesses’ warning of the consequences of ‘EXIT’ let me say

one thing concerning the Treasury’s recent dystopian report on the UK economy in the event of ‘EXIT’. So

much had the Treasury’s forecasting been discredited that from 2010 it was stripped of these responsibilities

by George Osborne no less, who transferred the role to the Office for Budgetary Responsibility (OBR). It is

instructive to note that the OBR has been sensibly firm-lipped on what it thinks of ‘EXIT’. Let me also say one

thing about Mark Carney. Not only is he a George Osborne appointee, he is a Goldman Sachs man. Both of

which should disqualify any evidence he produces. In fact, his reckless announcement soon after his

appointment that a sub 7% rate of unemployment should be viewed as evidence enough to trigger a base rate

rise is enough of a misjudgement to disqualify him, in my mind.

As it is then the trial set to conclude on June 23rd

threatens to prove a corruption of justice. This accepted, I

know that in two or so years time, at the very latest, we will have overwhelming evidence to exonerate those

of us accused of willing on the UK into misery by willing on a vote to ‘EXIT’ the EU. Because before long there

will be no reasonable doubt as to how a structurally weak EU provides only a drag on the UK and ever fewer

benefits. Those who wake up to this only after June 23rd

will have a rude awakening and will join the chorus

calling for a re-trial.



14

6. Why Brexit is a better bargain for us

We have been told that our membership of the European Union provides us with strength when negotiating

with other nations or groups of nations. Indeed the claim there is “strength in numbers” is used tirelessly by

enthusiasts for our continued membership. In what follows I will focus on this argument in relation to

negotiating deals in trade and commerce, not defence or security. After all, I have argued elsewhere that the

safety card is entirely spurious in relation to the June 23rd

Referendum; since the vote is solely on our

continued membership of the EU, not NATO.

I understand perfectly the commercial negotiating power provided by collective bargaining. In fact

optimisation and game theory has held a fascination for me ever since I was first fortunate enough to be

taught it thirty or so years ago. What has always struck me in particular is how rarely the outcome of a bargain

has avoided there being ‘a loser’. This “zero-sum” idea was explored by the 19th

century Italian economist

Vilfredo Pareto. When leaders say of a Trade Union negotiate with company management’s, they do so to

extract concessions for their members. And at the conclusion of the negotiations the overall ‘cake’ as it were

isn’t any larger, but rather the size of the pieces ‘cut’ and handed to each side are simply different, larger

according to which has wielded the greater negotiating strength. With this in mind let us now imagine two

quite distinct scenarios. In one we are collected together with others who are exactly like us, almost perfect

facsimiles in fact. In the other case, we must imagine we are grouped with others with quite contracting

qualities than ours. Now, in the first case collective bargaining is unambiguously in our best interests. After all

as indistinguishable individuals we are weak, but collectively we have critical mass when negotiating (as Karl

Marx made clear when encouraging “worker of the world unite”). And by being indistinguishable but

collectivised we receive exactly the same as one another, as is only fair (of course in his brilliant allegorical

Animal Farm George Orwell exposed us to the temptation that some try to be “first amongst equals”, a role

Germany has long aimed for in the EU). What we get in collective bargaining is greater than we would have

achieved negotiating individually and all gained at the expense of the counter-party we have been bargaining

against. But to repeat we and our fellow collaborators receive exactly the same.

What has gone before was a short explanation of the ‘commercial sense’ of us having a body to collectively

bargain for us, if we are all perfectly similar. Now consider we are in a group amongst which wide differences

exist. In this case collective bargaining is not in the interests of all. Take those working at a commercial airline.

There are the engineers and check-in staff on the ground, and there are pilots and cabin crew on board the

aircraft. None can dispute that this collective team whilst possessing very different skills need one another in

their day to day work. And neither can anyone reasonably deny that they each have different negotiating

powers, some clearly stronger than others. Now, if the engineers and pilots agree to exert their strength to

help the cabin and ground crew, one cannot reasonably doubt that stewards, stewardesses and check-in staff

would extract a better deal than were they to bargain alone against airline management. Few can also deny

that if they did allow themselves to be involved in collective bargaining engineers and pilots would end with a

worse deal than were they to negotiate separately. This then brings us back to Vilfredo Pareto. He gave us the

concept of an efficiency frontier or ‘Arc’ on which to make one participant in a game better off another needs

to be made worse off. And this is where the enthusiasts for the UK continuing within the European Union on

the grounds it is ‘good for our negotiating position’ have got it very wrong. The reality is that we are the

equivalent of the EU’s engineers and pilots. We are ‘giving up’ part of our negotiating strength to its much

weaker members.

Now there will be some arguing that our continuing within the EU is perfectly sensible selfless and altruistic.

My reaction is that whilst this is perfectly admirable, we have to make it clear that the argument for our

continued EU membership is then based on our ‘moral’ good but not our economic benefit. Indeed, as we

know pilots do not belong to the same ‘Trade Union’ as cabin crew for precisely the reason that it is not in

their best interests to do so. Cabin and ground crews would very much LIKE pilots and engineers to join them,

and so give-up some of their negotiating strength to help theirs. But to repeat pilots and engineers prefer not



15

to be in a broader Union. Well, the same applies to the UK, in remaining within the broad European Union we

are not benefiting from collective strength, but rather we are giving up part of our strength for weaker nations

to exploit. And only a casual look at the country’s keen to accede to the EU reveals a list of ever more weaker

nation.



16

7. Good trading practices

I’ve attempted to make the case why game and bargaining theory implies Brexit will see an almost

instantaneous writing of trade deals, no worse than those we already have, and indeed in many cases superior

to them. I will now turn to the practical reasons why drawn-out negotiations will happen only with the most

recalcitrant counter-parties; hurting them no less than us.

There was a time when establishing trade agreements involved a painstaking process. At first these required

sending emissaries over land and sea to negotiate terms. One had to allow for the time for the journey there

and back, and add the period discussing what reciprocal benefits could be achieved. On returning to ‘court’

the delegation would have to present the preliminary terms and if not entirely acceptable the whole thing

would have to be performed over again. Then once agreement had been reached the trading process would

require the often treacherous transportation of goods in trade caravans between the partners, again travelling

slowly over land and sea. I have, of course, described something which seems to come from pre-history. And

that is precisely my point. It is totally irrelevant for modern economies and merely historical.

When President Obama made his fanciful claim that we risked an up to ten year post-Brexit wait for a

comparable trade deal with the United States, it transported me to an age when we could not negotiate in

real time, were unable to speedily transport our wares by air, and could only trade in physical goods. Well, Mr

President, this is the 21st

not the 15th

, 18th

or indeed the 19th

century. We can communicate quickly and

transport goods swiftly. In fact, we now trade in services such that a British based business can offer and buy

services in an instant. And exporting services – which covers everything from catering and accommodating for

tourists and students, across to insurance, legal, architectural and many other professional ‘goods’ – is what

the United Kingdom is practically peerless in doing, certainly peerless across Europe, and almost unequalled

when measured as a share of its overall economic activity. So why in some cases do trade deals take so long to

thrash out? Well, invariably it is because a nation is being protectionist as a prospective President Trump

claims he will be and as the Japanese have long been. Japan has in fact proven one of the developed world’s

most trade wary nations. This may appear a strange claim given it is famed for its mercantilism. The reality,

however, is that Japan’s internal market has nowhere near been as porous to the free-flow of imports as it has

wanted its overseas markets to be for the goods it wishes to export. This is not the place to pour scorn on

Japan but rather all those who stand in the way of free-trade. When President Obama reflects back on his two

terms in the Oval Office I hope he cringes at what he said concerning the risks of Brexit and US protectionism,

we are after all getting enough of that from the Republican candidate.



17

8. Thinking twice about the numbers

I have been watching as forecasters on both sides of the argument present their estimated net costs or net

benefits to the UK economy following any vote to ‘Leave’. We have had institutions such as the Treasury, IMF

and OECD and we have had collections of economists coming out with numbers. In every instance I cry

“humbug”. I say this not because I have no confidence as to the net effect to the aggregate UK economy of an

EU EXIT. I cry “humbug” because the confidence shown in precise forecasting is implausible. To make my

position clear one more time, I am confident that the net effect to the whole UK economy after withdrawing

from the EU will be positive. I simply will not put a precise figure on what the benefit will be per capital or as a

percentage of GDP. It is not simply because the experience would be unprecedented that I dismiss those

making claims they can accurately predict the consequences of Brexit in monetary or real terms. I am

dismissive because the likes of the Treasury, IMF and OECD have woeful forecasting track records for the UK.

Consider for instance the two-hundred page dystopian report by the Treasury on Brexit; the forecasts within

which the Chancellor was so keen to point at to discourage us to vote ‘leave’. This is the VERY Treasury which

this VERY Chancellor stripped of its forecasting responsibilities back in 2010 because its numbers had long

become discredited; handing the role instead to the non-governmental Office for Budgetary Responsibility. If

the Treasury’s Brexit forecasts can be ignored, what should we make of the IMF’s, and what too of the

OECD’s? Well, let me repeat what I wrote back in 2013 and 2014 on these organisations. This first from August

2013 “Darn Losers”:

“Watching the way he beats himself up when losing a point, you know Andy Murray is in the true

sense of the word a winner. Over the same weekend he came through with his historic win, I

watched the Australian’s in defeat. As the Lions quite rightly celebrated you could see these

words being seared in the minds of each of the Wallabies; I don’t like losing, it hurts. When

Manchester United lost the 2011/12 Premiership title to their local rivals, Alex Ferguson is known

to have told the players to store how they felt and draw upon it for future strength. Within a year

they were back as champions.

Without entering into motivational psycho-babble you have to recognise what errors and defeat

means, failure. And in two fields there seems to be a total lack of hurt when losing. On the one

hand we have England’s international footballers and on the other financial and economic

forecasters.

HSBC research analysts have been unable to contain themselves to tell us how impressive the

future is for the UK’s residential market, and how attractive its listed homebuilders are. Why do I

make particular reference to HSBC? Because this is the firm which only until quite recently was

telling us the UK homebuilders were long-term rubbish. Indeed, I remember receiving HSBC

research entitled “UK homebuilders - the structural defects”, and fuming. Suffice it to say its

arrival prompted a swift and rather spicily worded reply.

I do not want to simply pick on investment bank research; where analysts are never wrong,

simply surprised. Such euphemisms are everywhere, research consultancies, accountancy firms

and essentially all self-selected soothsayers. Consider the all too familiar, “I am adjusting my

forecasts” where in reality the wording should read “I am correcting my forecasts.

For their part the IMF, OECD and CBI have recently raised their GDP forecast for the UK. What

makes these revision (read corrections) particularly interesting is they come from organisations

which only relatively recently lambasted the Chancellor for driving the UK into the ground. I could

go on and talk about the rating agencies, but will choose not to, since it would only raise my

blood pressure.”



18

Now this from January 2014 “It’s all just talk really”

“If an entire nation can be said to be economically dysmorphic I would argue Britain has a

negative self-image like no other.

Ask an average Briton about their economy and chances are you will hear it described in the most

unflattering terms. It doesn’t help of course that journalists and mostly but far from only

opposition politicians are unrelenting in their criticism. Of course, Britain’s economy isn’t without

imperfections. Its blemishes are nothing however compared to those of many other nations

which mask theirs by a thick veneer of makeup, the French, more specifically Parisians,

possessing a particularly vain economic self-image and affectation.

Having for very long been very loud in talking-down Britain’s growth prospects, the IMF, OECD

and numerous “think-tanks” are now falling over themselves to upwardly revise their forecasts

for growth in its Gross Domestic Product. And yet there remain doubters trying to convince us

Britain’s revival is either London biased, founded on PPI compensation and/or reliant on “free-

money”. Indeed, poor Christmas trading statements from a raft of UK retailers – cited in the

previous vignette - have been picked upon as evidence that all is not entirely well within the UK

economy. Notwithstanding an acceptance it is not without its challenges, I remain firm in the

belief that the forces driving Britain’s economy forward are fundamentally sound.

Although initially very much London-centred we are now seeing evidence of a diffusion of wealth

with the Midlands and North West of England both recording improving economic conditions. In

both regions the benefits of strong engineering and in particular car manufacturing have been

especially evident. In fact Britain’s car exports by value are as high as they have ever been,

alongside private new car sales back at pre-recession levels and growing fastest outside London.

As for the recent bout of encouraging labour market data, it is noticeable that the East Midlands

is the second region to see its unemployment rate break below Mark Carney’s 7% threshold.

Elsewhere Britain’s higher education sector has recorded strong enrolment from beyond the EU,

as families across emerging economies see education as a very worthwhile investment, and

Britain an ideal place to make the commitment. We need to remember that students entering

Britain contribute strongly to its balance of payments and that its universities are widely spread

well beyond the South East.

There are concerns of course. One is of a potential spill-over from a weakening Europe. There is

also a worry that “too good growth” leads to premature monetary tightening. The evidence

however has been that far from hurting the British economy, worsening events across mainland

Europe are encouraging more evacuation of people and their money from it to the UK, lifting

British property prices whilst keeping wage growth muted. This along with a dovish central bank

Governor suggests little chance of a rate rise this year or early into 2015.

As for General Elections and Referendum’s, their outcomes cannot of course be predicted with

certainty. This accepted, by 2015 when the next General Election is due, UK GDP will be growing

above 3%, interest rates will not have risen, but property values most definitely will. If elections

are as was claimed by Bill Clinton, “about the economy, stupid”, David Cameron has less to fear

than opinion pollsters would have him believe.”



19

9. Euler never quite expect certain changes

In my writings on the approaching referendum I’ve taken the liberty of drawing upon distinguished academic

and literally names; of those both living and past. Most recently I referred to the Nobel Laureates in

economics and decision-theory Professors Daniel Kahnerman and John Nash (posthumous) as well as a man

who they would accept was their inspiration, the 19th century Italian economist Vilfredo Pareto. I have also

made references to two writers whom one could describe as futureologists, George Orwell and Karl Marx;

both extolling to differing degrees of predictive power – but considerable following all the same – where they

saw we were heading.

Politicians too have been referenced. In one recent piece I made note of the unprecedented overlap of Enoch

Powell and Ian Paisley with Tony Benn and Denis Skinner in 1975. Back then each pair put aside their

otherwise diametrically opposed beliefs to jointly recommend we ‘Vote to Leave’ the EEC, this barely two

years into the UK joining the ‘Common Market’.

Now please be in no doubt, had I been able 41 years ago to take up your time through unsolicited emails I

would have done so to oppose Messrs Benn, Skinner, Paisley and Powell and offer reasons we Remained in

the EEC (which had eight other members then). I couldn’t, of course. Not only was this form of communication

a thing of fantasy, I was not yet ten years old, my English was poor, and my knowledge of economics limited to

playground swapsies; where I always seemed to end up worse off.

From what I have learnt since, the UK economy very much needed to stay in the European ‘Common Market’

in 1975. After all there wasn’t much of a global economy beyond it back then. Yes, there was the United States

but aside from it and the EEC there were precious few economies around the world which presented realistic

trade partnerships (whilst keen to export, Japan was reluctant to ‘open up’ its own internal market to

imports). At the time the Soviet Union was over twenty years away from glasnost and perestroika, and so

effectively closed. For its part Red China was also closed. It was after all still a year away from the end of Mao

Zedong’s Cultural Revolution, and the backlash in the form of the Gang of Four trial which followed – the most

notable defendant in which was Mao’s irascible widow. Elsewhere across Asia, South Vietnam had just fallen

to the North which meant effective defeat for Washington’s efforts to prop up the anti-communist regime in

Saigon, a city which would go on to take the name the iconic leader of North Vietnam, Ho Chi Min.

Politically the US not only faced embarrassment in its foreign policy but internal disbelief over the Watergate

revelations, a Presidential impeachment which loomed and on August 9th 1974 Nixon’s humiliating

resignation. For America’s economy the cost of anti-communist efforts in Vietnam and elsewhere had weighed

heavily. The US currency was in crisis – in 1971 Nixon had suddenly separated the dollar from the gold

standard which it had held since the Bretton Woods conference in 1944. The economy of the US had also been

hit – as indeed had the UK’s – by the OPEC shock of October 1973 when Saudi Arabia led the oil price up

fourfold - from $3 to $12 by March 1974 – in response to the Yom Kippur-Ramadan War. Across in South

America dictatorships reigned whilst on the continent of Africa it’s largest economy South Africa was a global

pariah, with proxy but very much deadly ‘cold wars’ being fought widely elsewhere on the continent, as they

were from central America to Asia.

If things were unstable around the world in 1975 they were hardly less so within the UK. The Government of

Harold Wilson had a wafer thin majority, and nationalists across Scotland and Wales were increasingly

demanding devolved Government, the Scots spurred on by the spike in the oil price. As for the internal UK

economy it was riddled with structural fault lines; large parts of it were nationalised and industrial unrest and

inflation were both escalating.

That was just some of the unpleasant background Britons went to the polls to in 1975: we desperately needed

as much of a common market as possible with those of our European neighbours not behind the Iron Curtain

or under the yoke of dictatorial regimes or just released from them; Spain, Portugal and Greece. Indeed



20

Greece had come close to war with its NATO ‘ally’ Turkey in the wake of the latter’s invasion and occupation

of northern Cyprus less than a year before our referendum. How the world has changed since 1975. Which

brings me again to dropping an esteemed academic name or two; this time the mathematicians Leonhard

Euler and John Venn.

Amongst a great many other revelations which Euler and Venn introduced us to was set-theory. And I see their

work as all too relevant for our upcoming referendum.

‘Leavers and Stayers’ are being drawn from all political sets – to differing degrees of course – Labour

supporters joining Conservatives on each side of the debate and other such cross-party common sympathy in

this ‘one issue’ question. Moreover, the set of those who campaigned to ‘Leave’ in 1975 does not overlap

exactly with those campaigning to leave now, testament to which is the SNP, which campaigned to ‘Leave’ in

1975 (UKiP for its part did not exist in 1975). Many individuals too have ‘changed’ their view. Consider Jeremy

Corbyn. One wonders whether his shift from wariness in 1975 towards our continuing in the EEC to warmness

for now staying within the EU sits heavily on shoulders which have long carried personal beliefs even when at

odds with the party whip; such is the journey from long-standing maverick backbencher to the most unlikely

leader. Another notable shifter is Nigel Lawson, who having agitated so strenuously that we join the EMU, is

now directing his efforts to us leaving its ‘mother ship’ the EU.

Let me now get back to those Venn diagrams.

Figure 1: UK’s possible trading partners

Source: Toscafund

Consider the set of nations which one could reasonably engage closely with back in 1975. And now compare it

with the set of nations which are now open to business and with whom our commercial engagement promises

to prove ever more lucrative. For one this circle is far larger than that of 1975. For another the set of 2016

hardly at all overlaps with the set of open and growing nations in 1975. Then, as I said, China was deep “in the

Red”. Now the Chinese economy will commercially engage with any nation which has something to offer it.

Then India was an essentially subsistence economy. Now India’s middle class is as large as the population of

the EEC was back in 1975, but growing much faster. Then the Soviet Union was a poorly managed command

economy. Now it has dissolved into two dozen sovereign nations. And whilst some may not wish to recognize

the fact, Russia has financially engaged closely with the UK, as have the likes of Kazakhstan, Azerbaijan et al. I

could go on but the point should now be clear that in 1975 the world’s three most populace nations were



21

largely economically out-of-bound to the UK. These are now fast growing nations keen to engage. Moreover

none happens to be in Europe, but rather in most cases some distance away. I mentioned that in 1975 the UK

internal economy was riddled with structural faults. It is now very different; as dynamic as any across Europe,

indeed as impressive in its internal fundamentals as any of the G20.

The issue then is this. Back in 1975 the referendum was a choice between on the one hand our economic

isolationism and on the other active regionalism, and it was no contest in favour of the latter. After all our

internal economy was stagflating and Western Europe was one of the few regions open for us to economically

engage. Now the vote is about internationalism over regionalism. It is a choice between remaining fixated with

what has sadly become an economically malfunctioning Continental Europe or casting our gaze far beyond it

to where we can engage with large emergent nations. Euler not be surprised to read that I believe it is no

contest in favour of the latter.



22

10. The referendum – Voting to Stay or Leave, and a broken nose

I have been told that I will get a bloodied and indeed broken nose from recommending the merits of ‘Leaving’

the European Union. Whilst this was said in a figurative sense it got me thinking about the literal.

From my experience the discomfort of a broken nose isn’t the actual moment the septum is dislodged, which

isn’t actually painful, but living with it and then having the corrective procedure. I remember comparing

experiences with a lawyer friend. Presented with a ‘quickie’ but momentarily excruciating solution or a drawn

out but essentially pain-free corrective procedure I elected for the latter. For his part the legal friend went for

the quick fix. The reason was that as a self-employed barrister, he was unwilling to endure the loss of earnings

over the three to four week recovery period needed for the surgical procedure. I, however, was salaried and

moreover had paid-for private health care. Here then is how my procedure went. I checked-in to a clinic and

was shown to a private room. Having chosen my evening meal and next day’s breakfast and lunch I was

wheeled into an extensively equipped and well staffed operating theatre and given a general anaesthetic.

When I awoke my deviate septum was deviated no more, and the process was as painless as I had been

assured it would be. What I hadn’t been told however was that my real discomfort was only about to begin.

Having been transported back to my airy room and carefully placed into bed the evening meal I had earlier

ordered then arrived. I had anticipated sitting up eating whilst watching television – the clinic boasted all the

Sky channels. The reality, however, was that the bandages on my nose were such that I could neither eat

easily or see too clearly; certainly not both at the same time. Dinner was abandoned and I tried to sleep. This

proved as uncomfortable as my efforts at eating and viewing.

I was not simply trying to sleep with cotton wool in my nostrils but with considerable amounts of it packed

deeply into my sinuses. The first night of broken sleep was the first of many. Day after day for a week eating

and sleeping with any comfort was impossible. Throughout this period I was house bound. Then I visited the

consultant who removed what had been stuffed into my sinuses and I returned home, relieved that I could

begin to resume a normal life. I hadn’t, however, reckoned for the sudden and considerable nose bleeds.

These again made me practically confined me to my home. The bleeding finally eased up and I returned to the

consultant. On inspecting his work he discovered that some of the cartilage in my nose had fused in a way that

needed another procedure, albeit only requiring a local anaesthetic. This took me into the fifth week of being

largely incapacitated.

That all happened close on twenty years ago. Now what about my barrister friend? Well, as I have already

written he opted to go for ‘a quickie’. This involved sitting on his consultant’s sofa, standing behind which the

esteemed surgeon said these words “this will hurt a bloody lot for a moment, and so feel free to scream. Now,

look ahead and think of anything other than where you are”. I was told that making almost no noise the

consultant suddenly leant over from behind my friend and quickly placed his thumbs on either side of his

nose; like a flash the deviated septum was yanked back into alignment. Whilst he described the pain as

something he had never experienced before, such it both made his eyes water and let out a loud scream, my

legal mate stressed this was all fleeting; certainly when compared to my protracted experience. He made clear

that he was back at his chambers the following day and earning a living.

So much then for reflecting on my particular experience and that of my barrister acquaintance in comparing a

painful but quick solution, with the ‘easy option’ bringing with it drawn-out discomfort. I will let readers

decide which of the two aligns with ‘Leaving’ or ‘Staying’.



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11. The Truman Show

Part I

For those still choosing to open these emails, citing a 1998 film starring Jim Carey in my musings over the

looming EU referendum may prove the final straw. Well, the cinematic “The Truman Show” concerns a man

who discovers he has lived in a world where his actions have been controlled by others, but where those he

has long trusted deny as much. Indeed, those around him warn Truman of the dangers if he leaves. The film

continues with his efforts to escape and the obstructions put in place by those trying to contain him. Watching

all of this unfolding is a global audience. In bars, at home and at work people are captivated. And for the most

part viewers excitedly back Truman’s efforts to escape; he however is unaware of how closely he is being

watch from above and around.

When Truman finally breaks out he exposes how those he trusted were simply paid actors and tales of the

dangers of leaving were lies all along. I think the film’s storyline is incredibly apt for where we find ourselves.

Part II

Back in May 2012 I penned a Discussion Paper entitled “Britain’s got Growth”. It was met on its release with

“howls of derisive laughter”. I would like to take the liberty of drawing on a few paragraphs from that research

to reveal just how different Europe would now be had the political Truman Show not happened.

“Even before the war in Europe had ended plans were being drawn up for what territorial and

economic form Germany would take once it was defeated. Tasked with planning Germany’s

“peace” was US Secretary of the Treasury, Henry Morgenthau, a man with considerable

influence, having been a major force in planning President Roosevelt’s New Deal. And,

Morgenthau had a very clear idea of what was required and it did not bode well for Germans.

The Morgenthau Plan was uncompromising; Germany should be split into three, with the largest

rump, North Germany reduced to a largely agricultural economy. President Roosevelt was a

keen supporter of this strategy and quickly commissioned the Joint Chiefs of Staff to draft a

framework for the terms of occupation along the lines suggested. The Directive which followed,

JCS 1067, ordered the US military government of occupation to “… take no steps towards the

economic rehabilitation of Germany [or] designs to maintain or strengthen the German

economy“. JCS 1067 was policed by a team of US Treasury officials who had been seconded to

the Army and who became known as the “Morgenthau boys”.

Occupation saw the wholesale dismantling of German plant and machinery and its

transportation out of the country, all under the guise of “industrial disarmament”. Most often

this valuable equipment ended up in United States. There was also a concerted plan to

deconstruct what remained of the German banking system, under the banner of decartelisation.

At the same time Paris organised the annexation of the important coal mining area of the Saar,

and began preparing it for assimilation into France. Against such a backdrop economic events

across Germany in the years immediately after 1945 progressed as they had in the years

following 1918; with rampant inflation, a collapsing currency and food shortages. Just as it

seemed it would sink into economic chaos the chill winds of the Cold War began to blow into a

gale that would quickly revise the American attitude toward West Germany.

At first the new US President Harry Truman was sympathetic to the concerns of his predecessor

regarding the risks an economically strong Germany posed. However, the onset of the Cold War

made him appreciate the need for a friendly and stable nation in the centre of a fractured

Europe. Indeed, Herbert Hoover, the man who Roosevelt had replaced as President put it starkly

in a speech in March 1947. Hoover’s words carried this stark Malthusian warning:



24

“There is the illusion that the New Germany left after the annexations can be reduced to a

‘pastoral state’. It cannot be done unless we exterminate or move 25 million people out of it”.

Truman’s Realpolitik of restoring Germany to an industrial state was supported by Secretary of

State George Marshall and in late 1947 JCS 1067 was replaced by JCS 1069. This recognised that

“an orderly, prosperous Europe requires the economic contributions of a stable and productive

Germany”. The generosity extended to West Germany would prompt the Wirtschaftswunder or

the German Economic Miracle that is the cornerstone of the mythology that now surrounds it.

Having been initially denied access to Marshall Aid this changed from 1949. The considerable

financial capital West Germany began to receive from this point allowed it to reindustrialise;

acquiring capital equipment exported from the US, an early form of vendor financing.

Additionally, there was the boost from replacing the worthless Reichsmark with the more stable

Deutschmark. Indeed, Frankfurt continued to manage the Deutschmark long after exchange rate

anti-gravity should have begun to work, in the process co-authoring with Japan the currency

management playbook that Beijing and others have evidently been reading from. With its

currency low and stable through the course of the 1950’s, economic events moved swiftly and

favourably for West Germany. Restrictions on its production capacity were removed and the

Saar was returned. Despite ending quotas on West German industrial capacity, its Allies

remained steadfast that it should have no military industrial complex. Far from being a

handicap, not committing men or resources to military spending was to prove another economic

benefit, saving West Germany from the opportunity costs of such commitments. Indeed, not

only did West Germany not need to provide manpower for its own defence, its safety was

“guaranteed” by the presence of 175,000 British and American military personnel, whose wealth

created welcome internal consumption, particularly in the early post war years.

Through the 1960’s West Germany’s economy gained momentum. Even though the

Deutschmark began to move higher from late in that decade its strength provided for the low

inflation that has become a policy obsession since. Of course, low inflation allowed the

Bundesbank to maintain low borrowing costs that did much to stimulate investment across

manufacturing. As the 1960’s made way for the 70’s, West Germany found itself enjoying

impressive fiscal, monetary and growth qualities that were the envy of others.”

So far then, so lucky, for West Germany; the bulk of the now re-unified Germany. This however is how I closed

“Britain’s got Growth” four years ago.

“By demanding the rest of EU member states in distress to adopt its thrifty image, Berlin is

expanding its economic hegemony across large tracts of Europe. It would not be an exaggeration

to claim these have been drawn into a Greater Germany.

As so often in the past, a Battling Britain is holding firm against the expansion of German

influence. Some would claim Britain will come to pay economically for its obstinacy. We

disagree. If President Hollande goes through with his promises the French will join other

nationals across the EU in considering where their personal interests are best served given the

options of the EU’s Single Labour Market. We have little doubt moving to Britain will be a

favoured option by many, providing it will welcome skilled workers and their evacuating capital.

We have predicated this piece on the assumption/in the expectation the euro does not

fragment. The issue however remains that defections are a possibility. In this event what of our

thesis favouring Britain's economic future over Germany’s?



25

1) In the event Greece is ejected or voluntarily exits the euro-zone, we would have to

assume others would follow. A Euro break-up in which not just Greece but most of the Southern

European countries now in that currency block left, would leave the “rump” – of Germany,

Austria, France, Holland, Finland and one can only guess who else eventually remained – with a

very much higher exchange rate relative to the new units of departees and long standing

currencies beyond. The result would be to eliminate the competitive advantage bought by the

depressed 17 nation euro. If the new “northern” euro attracted, as is more than likely,

substantial capital inflows, it could easily become painfully uncompetitive. For its part whilst the

pound would also rise against the new units of nations departing the euro, it is unlikely to do so

relative to the “northern” euro. The point to emphasise is that in terms of competitive position

relative to the euro-zone nations to which they export most, Germany has more to lose in the

wake of a break-up than Britain.

2) Beyond the Euro-zone many European countries which are currently shadowing the

Euro are certain to devalue at some point; and their moves will be all the more severe in the

event of a break-up in the euro. Crucially, such devaluations would have a far smaller effect on

Britain than Germany, given the latter’s more extensive mercantilist links across Europe.

Consider too Austria in all this, a nation whose banks have extensive exposures beyond their

home market; into Hungary, Romania, Croatia and elsewhere. It is no exaggeration to claim

Austria's banks and its economy would be sorely hit by currency shocks across Europe, bringing

the crisis right to Germany's doorstep.

3) The risks to Austria of widespread currency collapses across Europe are such that one

has to consider just which nations eventually remain in the “northern” euro? Could Finland

endure its competitiveness sapping rise? What of Slovakia, Slovenia and Estonia? One can only

guess how many of the euro's dominoes are left upright if Greece was toppled over? Each

departure could only heap more pressure on Germany, far more than the impact on Britain.

4) Disorderly devaluations across Europe would of course lead to significant demand

disruption and we have to consider the impact of downward trade shocks on British and German

exports. Here again one can only conclude matters will be worse for the latter than the former.

Moreover there is the real prospect that ejections from the euro would lead to ejections from

the EU, and the raising of trade barriers as a result. Here too one can easily see the German

economy being far more troubled than Britain's, given the latter’s more internally driven nature.

5) We also need to consider how disorderly devaluations across Europe would trigger

the flight of people and wealth into both Britain and Germany. This accepted, we feel Britain

would be both a proportionately larger beneficiary as well as being better placed than Germany

to capitalise on these arrivals. Better equipped by way of language and better equipped due to

the service nature of its economy.

The reality is that a break-up of the euro-zone and precipitous currency falls more widely across

Europe would severely affect German GDP. At the same time the event could cause, at worst, a

glancing blow to Britain's, if not even possibly a net positive, as it receives capital and labour

from its perceived safe-haven status.

We began this piece acknowledging that the vast majority of economic forecasters favoured

Germany’s future over Britain’s. We have challenged this preference in the only way we know

how; looking at economic futures not histories.”



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12. Seeing Europe in 2020

Even though I would never claim to see the economic and financial future with 20/20 vision, a crucial part of

being a career economist is to have ‘a view’. And an essential element of remaining employed as a career

economist is to be more right than wrong in ones outlook; and when incorrect in ones final answer, at least

having gained marks in the working out. At the present moment, I am expected to have a view out to 2020

and this is it.

I have recently written about the contingency of a vote to ‘Remain’ – the bookies short odds outcome. In that

vignette, I offered a view of the events I was convinced would unfold across the European Union and our part

in these. The point which I stressed was that the UK taxpayer could not avoid being involved in the looming

volte face of economic management across the European Single Market. This would involve shifting from the

failed approach of combining monetary and austerity programmes as a means of ‘sorting-out’ the economic

and financial problems (read mess) besetting essentially the euro-zone.

I have made clear that at some point the EU would have to adopt an essentially spending or Keynesian

solution. Whilst I described this as a sort of Rooseveltian New Deal I could easily have called it a modern

Marshall Plan, funded not by the United States but by those EU members who could use their balance sheet or

access to global credit to do so. And having renewed its EU membership – or as I put it previously our marriage

vows – the UK would be obliged to shoulder, a proportional, part of this responsibility. We would be expected

to do so because of our sheer size and because we would, after all, be one of the few EU members almost

certain to be enjoying robust real economic growth. In fact the worse economic, social and political events

become across large parts of Continental Europe the more EU nationals will ‘escape’ with their human and

financial capital to the British Isles – both the UK and its symbiotic neighbour, the Irish Republic.

When I claim Europeans will escape to the UK and Ireland, I do not mean depart solely from post enlargement

EU states, but leave original signatories of Treaty of Rome; France, Belgium, Holland, Italy and indeed

Germany. And the more this migration of human and financial capital happens, the greater Continental

Europe will be ‘hollowed-out’ and the faster the British Isles will be ‘filled-in’. Somewhat ironically we will find

that the ever growing number of EU nationals working and paying tax in the UK will find part of their

contributions to HM Exchequer being directed to whence they escaped. But crucially Britons too will be

expected to fund efforts to rescue the economies of France et al.

Now let me make one point very clear. In the event the UK did ‘Leave’ the EU of course it could not fail to be

affected by the economic and financial problems I am convinced will soon become far worse across it. What I

would stress is that whilst we would ‘suffer’ a regional trade ‘hit’ this would have to be put in context. First in

the global context of our trade in goods and services; the world economy after all extends far beyond Europe,

and is extensively growing in real terms in large parts of it. And second in the context of our being filled-in not

only by escaping Europeans (who would still be welcomed as economic migrants) but by arrivals from the

developing world, not least looking to study across the UK. I need to stress that my economics are neither as

an isolationalist or regionalist but as an internationalist.

As for a ‘Leave’ vote triggering a second referendum on Scottish independence, whilst clearly possible I see

this becoming made increasingly improbable with each new crisis across Continental Europe.

So what could forestall all this?

Well, the answer is as simple as it is improbable. What would make me review this outlook is some dramatic

fundamental economic recovery across mainland Europe. By fundamental, I mean not stimulated by a Zero

Interest Rate Policy (ZIRP) and Quantitative Easing (QE) but genuine in the context of being underpinned by

private sector job creation. Genuine too in the sense it reflects part domestic and part trade driven growth. In

fact until and unless the ECB ends QE we must assume the euro-zone is on artificial monetary stimulants or

more vividly in intensive care. My heart very much wishes the euro-zone is restored to rude heath. My

economic head tells me it is not simply far from recovery, but has the worst ahead of it. And if the euro-zone

has trouble ahead the EU more widely is in trouble.



27

13. The disgrace of not disqualifying oneself

From a barrister to a bricklayer, across to an estate agent and electrician, indeed across all services and crafts

we expect impartiality in the advice we are given and professionalism in the work provided. The contract we

enter into in all cases is that we will agree with the experts in their fields as to what we need, and pay them

for their work accordingly. The implicit assumption is that pride in their work and their sense of professional

responsibility will stop self-serving behaviour.

Where a ‘professional’ senses a conflict exists or may even be perceived to exist he or she is expected to

disqualify themselves without hesitation. In short, we expect those presenting themselves as professions to be

like Caesar’s wife and be above suspicion and beyond reproach.

At the beginning of this increasingly febrile referendum campaign I hoped those presenting a professional

rather than personal view would only do so if they could legitimately claim to be impartial. I had expected

those who were conflicted either way of the Remain or Leave issue to either adopt a form of purdah or failing

self-censure, to make clear their conflicts whenever venturing forth an opinion. Well, we have not had such

disclosure from the IMF or OECD, nor from PwC or Ernst & Young. Neither had we had it from HM Treasury or

the Bank of England. In fact I could denounce many others from Goldman Sachs to the CBI for concealing their

conflicts in a cloak of indignation, at the MERE suggestion they may be anything other than impartial. Some

may point to the extremely cautionary outlook expressed by the Institute for Fiscal Studies, whose forecasts

were for a long time seen as far more objective than those of a too politicised HM Treasury. I do not disagree

that the IFS was once the independent arbitrate of UK growth. What I would stress is that the Office for

Budgetary Responsibility was created for the very reason that Treasury forecasts were so discredited. The OBR

in effect is the official blue-ribbon UK growth forecaster, to all intense and purposes making the IFS redundant

and so keen to be noticed. For me at least the decision by those in the OBR to decline entering the forecasting

fray says much about how truly professional it is and how lucky we are to have it. I would thank George

Osborne for creating the OBR but for the fact he seems to have forgotten why he did; the Treasury’s

forecasting had lost all credibility.

As to why there are so many institutions which are conflicted one does not need to call upon Sherlock Holmes

or forensic science to uncover the reasons; every institution I have named has financial interests aligned with

not upsetting the EU and its myriad institutions. For my part, it greatly upsets me that we are being spun a

great many untruths by those we are expected to continue to trust after June 23rd

, when they are sure to be

exposed either way.

As for my conflicts I do have to admit to them. I am a UK taxpayer and have all my assets here, and am geared

entirely in sterling. In fact, I do not simply have some skin in the UK game, I am entirely immersed in it.

Therefore, what I unashamedly want is what is “best for Britain’s economy”.



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14. Wacky European Races

A few weeks ago I had the pleasure of experiencing the thousand mile race around Italy, known throughout

the world by its famous alliterative Latin title, the Mille Miglia.

I was admittedly not in one of the four hundred or so classic cars participating in the race - from four thousand

applicants. I was instead a mere passenger in one of the equally numbered support cars. This admitted we

weren’t so much following passively behind but in amongst it all, and at times seemingly in the race. And not

simply in a support car version of the classic race, but occasionally up against the priceless machines

themselves, very often raising the ire of their drivers; one of whose wing mirrors was more valuable than our

entire car and our luggage. With our vehicle (if I told you it was a Renault Twingo, would you believe me?)

bearing stickers designating it as a ‘Support Car’ the stewards and the Politzei, Caribianari and others in the

best dressed and most leisurely police force in Europe, allowed us to act as if we were in the race. They

escorted us on motorcycles whilst others waved us through red lights, the left side of the road and the wrong

way around roundabouts, all with no consideration of speed limits. I must add we took the precaution of

having our hazard lights on through all these manoeuvres. To add to the proceedings during the weekend

period of the race a great many car-clubs across Italy have ‘meets’ where they follow the classic route. The

result in short was the spectacle of multiple races involving a great many more than four hundred cars hurtling

around Italy.

We drove through towns across Lazio and cities up into the Toscana region, and what fun it was. Delighted

scenery combined with excellent food and refreshingly deserved evening drinks. Like they do, the final day

came, which was Sunday where the last stage would take us from Parma to Brescia through Firenza and past

Bologna with a stop at the famous Monza autostrada. Anyway, we woke to what I must say was an even less

than indifferent breakfast. This would have been far more annoying had we not dined and wined so well the

night before. Anyhow, off we set in the company of not one but four silver Gullwing Mercedes Benz classics

and a number of other automotive beauties, driven mostly by grizzled men.

With a long drive ahead our priority was fuel. We stopped at the first petrol station we came to as did many

other participating and support cars. On getting the nozzles out, so it were, they proved to be closed. Closed

too were the second, third and fourth petrol stations. Each unfulfilled stop raised our ire and lowered our fuel

reserves. We did finally fill-up with fuel, but not before we had sweated in the Tuscan morning sunshine, as

did our fellow ‘Mille Migliaries’.

Now relaxed, we settled down and drove at a more sedate speed than the previous day - well mostly - through

sleepy villages, sleepy towns and indeed sleepy Italy writ large. It was Sunday after all, and a day of rest.

Anyway we experienced the Monza circuit and enjoyed celebrating the race finish in Brescia where it had

begun five eventful days earlier. After a splendid night in that historic city we awoke to grey sky and rain, the

sunshine we had enjoyed the days earlier reappearing again only as we touched down at Luton.

During the journey home I reflected on the unparalleled experiences. There was the beauty of the scenery and

the cars. And there was the excitement of it all and the excellence of the people and the pasta, the wonderful

wine and the wit. As for the cars and drivers they were as heterodox as they were interesting. This said whilst

international they were for the most part European. Alongside Italians driving Ferraris, Germans in Mercedes

and Englishmen in Astons, were classic British marques driven by Continentals and Continental classics driven

by Brits. One was made aware of each drivers nationality by the name and flag stencilled on the doors,

although there was seldom doubt as to their origins from how they looked and drove. One thing I remember

as being noticeably absent in this classic European road race, was the EU flag to designate driver origin.

I also couldn’t help but recall that I came close to missing the Mille experiences because of the disruption

caused by a strike by French air traffic controllers, the beginning of what threatens to be a Summer of Gallic

discontent as nasty as our winter version back in 1978/79. Not that industrial unrest is confined to France;

there are picket lines being drawn across much of the EU from Belgium down to Greece. Neither could get out

of my mind the sleepy Sunday or the Saturday in Parma when we were told that a bistro with an al fresco



29

dining area, perfectly situated to enjoy the end of that days racing at 8.30, closed at 7.30. I remember when

the UK had what are so out-dated working patterns; introduced initially to protect workers but inevitably not

fit for modern purpose.

I also reflected on my few days on the Costa de Sol presenting at a very pleasant off-site arranged by one of

the UK leading real estate advisors. It was from there that I had travelled to Italy. I remembered becoming

familiar with “En Venta” the Spanish for “For Sale”; so often did I see it driving from and to the airport painted

on buildings. This graffiti was sufficiently weather beaten to indicate the seller had been waiting some time to

be requited with a buyer.

I returned to the UK with it even deeper in the throes of referendum rhetoric. The ‘Stayers’ were extolling in

ever louder tones the virtues of our links with Continental Europe. For their part the ‘Leavers’ were making all

the cases bar the one which was most relevant; large parts of the much vaulted European Single Market were

closed on Sundays, holding a fire sale when opened, or were behind the flaming barricades erected by strikers.

I was not in the UK long before my travels took me to Cyprus, or more precisely the Republic of Cyprus, a

member not only of the EU but the euro-zone within it. There I was already familiar with signs announcing

“Polytai”, or “For Sale”. This said my acquaintance of these increased greatly as did my familiarity with stories

of distressed assets, unemployment and the exodus of those able to. So much for my travels around Europe,

and my ruminations on them, the last of which I will close with; I wonder whether ‘Remainers’ are aware the

journey they want us to continue on as members of the EU is not a pleasant one around Europe involving

good fun, food and friends, but rather a race to the economic bottom, political extremes and social

disharmony.



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15. Fear the real serpents not imaginary sharks

The essence of the ‘Remain’ campaign is the claim Brexit would result in abject chaos.

Project Fear involves the chilling forecast that our economy will descend into stagflation. It predicts prices will

soar, output will collapse and we will see considerable job losses; the UK in effect becoming a case study in

self-imposed autarky. ‘Remainers’ predict no less chaos will beset our politics. They argue that a vote to

‘Leave’ will trigger an internecine war within the governing Conservative Party, whilst at the same time

galvanising the Scottish Nationalists into demanding a second referendum on independence. All this will

unravel at a time when the Labour opposition in Westminster is itself incapable of Governing in a unified or

credible fashion.

As I have written before, Project Fear contains some scary stuff, which none in their right mind would

reasonably wish upon themselves. Given I have dismissed the economic cataclysm which ‘Remain’ has

predicted and argued political ‘shocks’ are not uncommon why am I returning to these - unfounded - concerns

once again? Well, because since I last broached them, Remain campaigners have crossed the imaginary

rubicon into a brexitland which Swift and Carroll would applaud.

In TV culture (sic) the Remain campaign has in effect jumped the shark. This term was coined after audiences

watched ‘The Fonz’ perform such a feet of daring only to react by not being so happy with the ‘Happy Days’

scripts. ‘Dallas’ too had its jump the shark moment involving an entire series (they call them seasons

nowadays I understand) being explained away as a dream. Those old enough will remember the ‘dead’ Bobby

Ewing emerging Lazarus like from a shower at the beginning of the first episode of the series after being dead

in the one before.

I refer those too young to remember either this or The Fonz’s shark jump to a more recent crossing of the

credibility rubicon, one involving a sizeable stone tablet. On this were carved policy promises which their

author was never able to prove the credibility of. After all, Ed Miliband was never tested because his

Manifesto was not sufficiently believed to win him enough of the popular vote to prove he could deliver on his

‘Commandments’. The contrast with the looming referendum is that if Project Fear is successful in avoiding

Brexit the shameless nonsense concerning its consequences will not be tested. In the event, however, we do

somehow overcome the Fear of the unknown then we will come to know that Brexit waters are not shark

infested. And we will awaken to the realisation that ‘Bremainers’ were speaking with serpent tongues.



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16. Valued migration points

For many, the issue of immigration to Britain is amongst the most important in deciding how they will vote in

the EU referendum on June 23rd

. Indeed for some, it is the only factor. Since ‘Vote Leave’ has now presented

the outline for a points-based ‘Australian style’ immigration system I wish to spend a moment considering this

thorny but unavoidable and fundamental issue.

None can doubt there is considerable demand to be in the UK to work or study, the gross number arriving

over recent years is evidence enough. Whilst those keen to enter Britain from beyond the EU have to ‘make a

case’ to be allowed to come to the UK to work or study, nationals from across the EU are bound by no such

requirements. With the Government struggling to contain net-immigration to its arbitrarily annual target

(currently set at 100,000) it is hardly surprising that restrictions on non-EU nationals have tightened

considerably.

Now, were the nations beyond the EU largely populated by inferior potential migrants than those of the EU,

this would not be a concern. This is, of course, a ridiculous premise. It is ridiculous in the context of Australians

and Canadians keen to work in the UK and ridiculous in relation to young adults from India’s and Africa’s

burgeoning middle class keen to study here. It is ridiculous because it assumes Europe’s global population

primacy.

The reality is that the present system ensures the UK’s migrant-mix is economically sub-optimal. How can it be

anything other unless we can prove that the EU has some exclusivity over what the UK requires economically

in relation to its need for “new blood”? With this in mind, a points-system seems eminently sensible. Points

earned from having professional or vocational skills. Points achieved by language aptitude and points earned

according to a clearly defined set of discriminating taxonomies. Not discriminating by race, creed or colour but

discriminating in terms of the UK’s economic needs. Would this be impractical? Well, it is what is practically

being used for applicants beyond the EEA, so why not within it? And if it was impractical why does it work so

well in Australia, et al.

Chart 1: Net migration, by main reason, EU

Chart 2: Net migration, by main reason, Non-EU

Source: ONS (Long-Term Migration data), Toscafund

Lest we forget Teresa May is the Home Secretary on whose watch the ridiculous 100,000 net migration target

has been in existence, a politician who more recently identified herself squarely as a ‘Stay’ campaigner. She is

in effect the chief architect of the UK’s sub-optimal migration policy.

Let me close with a few anecdotal points.

I find it curious that my recommending the merits of a points-based immigration selection will not find favour

with many of those who are members of ‘Soho House’, the ‘Groucho Club’ and other celebrated institutions.

My curiosity stems from the fact these use just such a selection system; one which happens to overtly

discriminate against the likes of me because I work in finance. In fact, a year ago, I applied for membership of

the Royal Automotive Club. I did not begrudge having to form-fill or wait for more than a year to learn of my

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fate, possibly having been called for an interview. Nor too did I resent having been proposed and seconded or

paying an application fee. In fact, having to overcome these hurdles was part of the proof that it was worth

being a member of that institution. I do hope I’ve got my points across.



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17. Trigger happy contracts

There has been much discussion of the contingency clauses being written into certain draft contracts dealing

with transactions in UK assets, particularly those involving real estate. These would be exercised in the event

of a vote to Exit the EU. The existence of such triggers has raised concerns that the UK will miss out on inward

investment which would otherwise be assured were continuity in the EU guaranteed. Let me try to expose this

as yet another unfounded element of Project Fear.

I wish to briefly outline why in the instances these clauses actually do exist they have been misinterpreted and

their threats to inward investment exaggerated. For the most part they are NOT parachute clauses, allowing

prospective buyers to walk away from acquisitions. They are instead mechanisms to reprise deals ex post of

Brexit, and it’s near certain downwards effect on sterling’s value in the foreign exchange market.

It is certain the pound will weaken if we vote ‘Leave’, but unclear by how much. A to why the reason is simple

currency markets do not like events which have no precedent. Their response is to ‘price down’ until the fog

clears. This said the ‘correction’ will not be an unrelenting collapse as the hyperbolic ‘Remain’ camp claims,

but finite (and by the way it will undershoot and then rally as we witnessed in 1992 and 2008). We saw a

bounded weakening in sterling – c28% - in the wake of the ‘unprecedented’ banking shock of 2008, and we

witnessed a finite c28% decline in sterling when the pound made its dramatic EXIT of the ERM in September

1992. In both cases the shocks were a surprise to almost all. The same cannot be said of Brexit. We know it is

possible from June 24th

and the ‘fact’ that the pound will fall to new levels against the euro, dollar et al in its

event. It is perfectly sensible then for contingency clauses to be written into contracts being drafted ahead of

the referendum.

Chart 1: Dollars per pound, ERM exit

Chart 2: Dollars per pound, Lehman’s collapse

Source: Bloomberg, Toscafund

The point is that a vote to Leave is not a deal breaker but a deal revaluer, I’d call such clauses shock-absorbers.

Imagine as a dollar buyer I see a sterling asset as being attractively priced at say $y measured using an

exchange rate based on a Remain model – it doesn’t really matter which methodology. Now assume that the

pound weakens by say x% in the event of the UK Leaving the EU. A contingent contract which ratchets what is

paid in dollars to y(1-x/100) makes perfect sense. After all the UK vendor will still receive £y. Some will no

doubt claim that a vote to Leave will undermine the occupational fundamentals of UK assets. Since I have

written extensively elsewhere why I do not fear any such deterioration I will not do so here.

What of owners from overseas nervously holding UK assets, in particular real estate? To these I would

perfectly understand them selling if they sense the vote might be to Leave. I would, however, advise they re-

enter the market they left at the first sign that sterling has found its new level. I say this because I see no asset

backed investments elsewhere across Europe with more occupational and rental promise than those of

England. Brexit will after all not replace regionalists with isolationalists, but internationalists.

1.2

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2002 2004 2006 2008 2010 2012 2014 2016

-28.1% -28.3%



34

Stupid is as stupid does

Without a hint of humour and often with a very evident sneer I have been accused of being stupid for supporting

Leave, even by those who have hitherto considered mine a prescient mind on many things to do with economics.

Indeed, my reasoning for why the UK should ‘Exit’ the EU is based entirely on the economic costs and benefits of

staying versus leaving; a focus which many claim narrow-minded, lacking in perspective, and so piece-meal. Well,

I'm sticking to this focus all the same. Even with this emphasis my economic arguments have come against the

criticism that I have succumbed to the psychoses known as confirmation bias.

Confirmation or my-side bias – also known as subjective validation – is a form of cognitive dissonance when one

seeks to emphasis data which supports a stubbornly held prior belief or prejudice; at the same time suppressing

anything which could undermine ones pre-judgement. Indeed, when Forest Gump famously spoke the words, that

form the title of this short piece, he was in effect voicing the criticism that people tend to think those who do not

agree with them are the stupid ones. Well, if I may I will talk more stupid for a paragraph or two.

Since the referendum was called, a lot has been spoken and written concerning the harm uncertainty has done to

our economy. We have been told it has not only tempered investment but triggered disinvestment. Now, when the

Chinese Government recently made London the first foreign centre from which to issue its Sovereign debt, was it

being stupid in the face of uncertainty concerning the UK's tenure within the EU? And was this action bad for the UK

economy? Was China being even more stupid when it announced that it would invest in the Midlands to build the

new version of the iconic taxi it now owns the rights to? Or was it being stupid taking a one-third interest in the new

nuclear power plants at Hinckley Point in Somerset and Bradwell in Essex? Was the Indian management which

announced that the new Aston Martin factory was to be in Wales, also stupid? And was that decision bad for the UK

economy? Was Boeing's management itself stupid when it recently revealed that the UK was where it chose to

make its European hub? And is the bond market stupid in sending Gilt prices to new highs and yields to historic

lows? And are either bad for the UK economy?

Does citing these instances simply show that my mind has been dumbfounded by a confirmation bias and subjective

validation disorder? And can I reasonably claim that without the uncertainty of the UK’s EU membership there

would not have been considerably more investment in the UK? Or do these and many other instances of inwards

investment into the UK announced in the lead up to June 23rd

, confirm that others around the world are quite

sanguine on the referendum issue and are attracted to the UK regardless of its membership of the EU?

As for what a weakening pound is saying, well it tells me very clearly that it is good for the UK economy. And in the

words of a former US President, when it comes to what really matters, “it’s the economy, stupid”.

Let me close with one final reference to a cognitive bias which I consider one of the most fascinating, it has come to

be known as the Dunning-Kruger effect. This form of opinion psychosis involves believing one is smarter than in

reality. The academics who were first to identify it had come across the case of McArthur Wheeler. Mr Wheeler had

robbed banks with his face covered in lemon juice. He did so in the belief that because lemon juice is used in

invisible ink, his face would not be recorded on surveillance cameras. Now I mention the Dunning-Kruger effect

because often whilst listening to BOTH sides of the referendum debate I have been left thinking, I wonder which

speaker has smeared most lemon juice over their face. Stupid is as stupid does, after all?

Although not a perfect parallel one can compare the way the recent surcharge on SDLT has altered pricing

points in the residential property market. That there was a surge in transactions ahead of the implementation

of the new tax reflects how amateurish the exercise was performed. The UK residential market has such

strong fundamentals that only an amateur would suggest lower transactions in the quarters and indeed years

ahead.

For the record the person who performed the amateurish change to SDLT is the very Chancellor encouraging

us to ‘Remain’ with him.



35

18. Staying ‘In’ – Dear, oh financially dear

The ‘Stay’ campaign has presented countless arguments why an ‘Exit’ from the “comfort” of the European

Union would propel the United Kingdom into a dystopian future. We have been warned it would disrupt trade,

raise food and energy bills and increase prices for our airline tickets, and generally leave us all so much worse

off than were we to simply stay put in the EU. I will not spend time here pouring scorn on these claims, as I

have written my dismissive words towards them extensively elsewhere. If I may then, I’d like to spend a

moment presenting how, to my mind at least, the decision to remain will cost us all financially dear oh very

dear. Let me do so by transporting us to no later than the second anniversary of us having renewed our vows

to the EU, on the assumption this is what we choose to do on June 23rd

.

Yes, Germany has long resisted a spending-based solution to Europe’s economic problems. But no this

reluctance cannot and will not continue. To those who claim this capitulation could only happen were Angela

Merkel to leave office, I say her months are numbered anyway. Regardless of her formal position there will be

an economic catalyst for a change of policy in dealing with the deep rooted problems around Continental

Europe. The trigger will be the detonation of devaluations around the periphery of the euro-zone. Whether it

is Hungary, the Czech Republic, Romania or any other of the eight Continental nations within the EU, but

outside the euro-zone, I have no doubt that within the next two years one of these will experience a sharp

currency reversal. The most likely reason will be the respective Central Bank taking interest rates to nil – or

even negative - in response to ever weaker economic data and deflationary pressures. Rate cuts would act to

effectively pull the yield support from under whichever national currency its central bank acted decisively the

way others already have done, viz. Sweden. And when one post-enlargement EU currency tumbles, a domino-

effect is certain to follow. We saw a dress rehearsal of this in 2008 when considerable bailouts were paid to

calm matters. Next time however we will see the full drama. The most recent performance of what awaits the

European audience was in Asia in 1997.

Back in the autumn of 1997 the Asian exchange rate crisis saw currency after currency fall sharply against the

dollar, and most notably the yen; a currency which had been carried around Asia in search of yield. That crisis

had the effect of unravelling the seven-year effort which had been made to revive and reflate Japan’s

economy. Fast forward two decades and I predict the same awaits Europe, the frail euro-zone taking the role

of Japan, and Polish, Czech and Hungarian devaluations the roles of Indonesian, Malaysian and Thai ones back

in 1997. Be in no doubt Germany’s economy within the euro-zone will not come off lightly.

At a time when euro-zone members desperately need a more competitive currency to help their flagging

fortunes they will soon be hit with an even less affordable euro. This will prove the catalyst for the EU turning

to a spending-based solution, not least because it would seriously fear defections from the euro. And it is at

this point when the UK is dragged in. Why? Because having renewed our vows to remain in the EU “through

sickness and in health” we will be required to contribute to funding the fiscal efforts being applied to our ever

more sickly EU partners. Now, some readers may feel we have a responsibility as good Europeans to stoically

hand over money. Others may say we owe it to Europe to help it out in its time of need, so as to avoid its

problems spilling over to us. Whilst I would applaud such benevolent sentiments I am not at all sure that most

of those convinced we should ‘Remain’ are aware of just how much the Exchequer, and through it UK

taxpayers, will have to contribute. As for the idea of paying up to avoid the spill-over, I see that as a

contradiction; the spill-over IS the financial burden. Could we resist paying up? Of course not. My premise

after all is that on June 23rd

we have renewed our EU vows, and so all the more tied the knot to it financially.

To repeat, until now we have largely avoided being involved in rescuing the European Union because the

medicines dispensed have been austerity and monetary; neither involving us. And to repeat, the former is

counter-productive and the latter applied long after it should have been to be effective. The result is that by

Remaining we WILL be dragged in financially.



36

So here we are then, in my imagination as it were, being shown things by the ghost of two summers future.

Not only are we being told we have to make a sizeable financial contribution to the EU’s version of a

Rooseveltian New Deal, but we are two years into a period when the demand for British exports to the EU will

have fallen in tandem with mainland Europe’s ailing health and lessened appetite to import. Our trade deficit

with Europe will in short have become even wider. Note also that the pound is set to lose considerable

competitiveness against those EU currencies which devalue, as I am certain they will do. True, the cheapening

of goods from our EU partners will help lower import costs. No less true is that it will hold the Bank of

England’s hand on the base rate tiller for even longer; welcome to some, but far from welcome to all.

Now, what about the economically motivated movement of people around the Single Labour Market (SLM)?

Far from more competitive currencies in Poland, Romania, Bulgaria et al encouraging their nationals to

remain, the more likely outcome is they will be tempted to leave, and their most likely destination across the

SLM will be the UK. And I have little doubt the French will be well represented in this wave of new inflows just

as they have been amongst recent arrivals, as captured by the issuance of National Insurance numbers.

Chart 15: French National Insurance registrations

Chart 16: All National Insurance registrations

Source: Department for Work & Pensions, Toscafund

I have claimed above that the European Central Bank’s programme of Quantitative Easing will inevitably prove

forlorn. Let me elaborate. For one, the prevarication shown in performing it has undermined its effectiveness.

It has been further undermined by the austerity programmes pursued in tandem and IN CONFLICT with it.

Contrast all this with the UK, where rate cuts and QE were each performed in a timely fashion. For its part the

UK’s austerity has been tame when compared to what the Troika is demanding of Greece, Cyprus, Spain,

Portugal et al. And to repeat, the ECB’s QE will ultimately fail because it will soon come up against deflationary

currency shocks around the euro-zone's borders. It will be at that juncture that the financial cost of the UK

remaining will become clear. The reason is that the euro-zone's problems will then become the wider

European Union’s to fix, and we will not avoid carrying a considerable financial burden.

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37

19. The insanity of the ECB

The British economy performs impressively despite the perceived “uncertainty” caused by the EU referendum;

new car sales rising, consumer spending increasing and property demand robust against the backdrop of

strong job creation, more than four years after the Bank of England ceased to Quantitatively Ease. By contrast

the economies of France, Italy, and Spain et al., across the euro-zone are being stimulated by a potent

monetary cocktail. New car sales would not be rising across mainland Europe without this stimulus, or asset

prices supported. And make no mistake, just as we saw with Japan in the middle of the 1990’s with its NZIRP

(Near Zero Interest Rate Policy) and United States from 2008 with QE (Quantitative Easing), potent monetary

medicine performed too late or for too long can lead to dangerously toxic currency consequences.

From April 1995 the Bank of Japan was reduced to adopting a NZIRP, one which it was woefully late in

employing. As Japan’s pension and insurance firms saw their income on yen investments fall to near zero, they

carried their capital out of Japan into the yield available widely across Asia. For its part, the Federal Reserve’s

interminable QE programme from November 2008 inflated prices of Treasuries and US corporate bonds and

so forced dollars to journey extensively across Emerging Market economies drawn by their generous yields. In

both instances of this currency carry-trading, exchange rates were dislocated.

At first destination currencies strengthened. But as capital respectively left the yen and the dollar it not so

much stimulated destination economies as distorted them, releasing highly combustible monetary gases.

Eventually these detonated with currencies which had been the target of yen and dollars being blown-off

exchange rate cliffs. And just as sharp devaluations in neighbouring Asian economies sent Japan back into

deflation and recession so the same appears to have been happening in the US through 2016 in the aftermath

of the decision to begin tapering QE from late 2013 started a process of weakening currencies across the

emerging world.

Einstein once suggested the definition of insanity is doing the same thing over and over again but expecting a

different outcome. Be in no doubt the European Central Bank’s monetary cocktail of ZIRP and QE will

inevitably result in the same outcome as the earlier experiences of the Bank of Japan and US Federal Reserve.

In the ECB’s case the economies of Central, Eastern and Southern Europe are set to suffer marked

devaluations against the euro. Whenever this denouement comes is unclear (autumn 2018 is my guess) but it

WILL, and will bring with it an entirely new set of costly pains to ALL member of the European Union.

I mentioned earlier the robust new car sales and property markets in the UK were underwritten by an ever

stronger jobs market. I also made reference to the seemingly impressive strength in property prices and in

new car sales across mainland Europe, which I attributed mostly to QE and ZIRP. Let me consider specifically

the recent strength in Europe’s automotive market. Rather than strength in fundamental demand this has

reflected a surge in refinancing as drivers across the continent have been able to buy a new car taking out new

loans with an interest payment lower than that on their existing car. Whilst this has provided much needed

respite to the automotive industries of France, Italy, Spain and others, it has seen a glut in used cars for sale

and so sharp fall in car prices; new and used. In its efforts then to deal with deflation the ECB is, in effect,

deepening it. The ECB is quite frankly using pain killers which delay rather than do-away with the need for

invasive supply-side surgery. And the longer this delay goes on the more demanding the operation with have

to be.

For the record the IMF failed to predict what hit Asia in 1997 or the currencies of Emerging economies more

recently. That it chooses to mistakenly predict a Brexit recession and not disaster ahead for Continental

Europe, speaks volumes about its forecasting abilities.

As for the most recent of the barbed political comments being levelled at those in the UK keen to ‘Leave’, let

me say this to the French Economy Minister. I’ve only recently visited Guernsey. I could only wish that the

whole of the UK were to operate as that island does. Let me add that at a time when the French economy is

struggling with industrial unrest, is being evacuated by its prime aged adults and set to be hit by currency

shocks across Europe, his economy is better spent dealing with these real problems than the ones he imagines

will face the UK were we to ‘Leave’.



38

20. Condemnable damned economic lies

It has been said that to ‘Leave’ the EU is a form of disloyalty, caprice and hubris. I see it as none of these;

instead to leave first is to lead from the front. Were we to leave I am convinced the UK would lead the way for

other member nations to realign themselves within the EU, and very possibly make their own escape from it,

and from outside negotiate a sovereign re-engagement with those who chose to remain.

By leaving, the United Kingdom would in effect become a talisman, lighting a flare path for others to follow. In

fact, a great many of those across the EU are not watching disapprovingly, as we seriously contemplate an

Exit, far from it. The reality is that many of our fellow EU inmates would be delighted if we made a break for it.

As I have said they would be delighted because we would be a pathfinder for their own prison break.

I am mindful that Swedes in particular are keenly watching what we do regarding the EU, and many are indeed

eager for us to ‘Leave’. After all it too has a sovereign currency and an economy which can boast a wide range

of keen customers beyond Europe. And like many of us across the UK, Swedes have come to challenge the

idea that being outside the EU is untenable; after all they only need to look close to home towards Norway to

see the nonsense of such a claim. Remaining within Scandinavia I am convinced that whether we ‘remain’ or

not, Finland's days are numbered within the euro-zone and very possibly the European Union; this number

lowered significantly if we do ‘Leave’ first.

Our leaving would also be welcome by many others across the European Union, not because it would allow

them to escape, but because it would relax the regime they would remain imprisoned within. I am thinking

here of the likes of the Greeks, who are once more living under a dictatorial and crippling economic Germanic

discipline. Now, whilst Greece was evidently guilty of a form of fiscal malpractice, we in the UK have consigned

debtors prisons to Dickensian history. For its part Germany has no such qualms against the harshest of

punishments for breaking their strict rules on thrift and parsimony. This brings be to three facts.

Chart 17: UK NI registrations from Greece

Chart 18: Australian migration from Greece

Source: ONS, ABS, Toscafund

First, whilst Greece spent beyond its means, it did so in large part on German imports; from an entirely new

airport for Athens to German engineered cars and electrical and electronic appliances. Second, much like

Philip Green and the Libyan Investment Authority, Greece was advised during its reckless years by Goldman

Sachs; the firm which is encouraging we ‘Remain’. Greeks much like Libyans and BHS workers and those

retired from its employment will hardly ever again be inclined to believe what Goldman Sachs claim. Third,

whilst Greece cannot escape the EU, prime-age Greeks can and most definitely are. In fact, an increasing

number of those across the EU agile enough to make their escape, are doing so, including urbane Parisians.

And as they do they Leave weakening economies and speed the pace of this decline.

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39

Chart 19: UK Employment and unemployment

Chart 20: No. of passenger Cars produced &export value


It is telling that the latest set of labour market data should reveal an impressive decline in the unemployment

rate and a record high in the level of employment. It is telling because it flies in the face of those claiming the

UK economy has been struck down by referendum fever. In fact, data from car making and exports across to

new car sales has confounded claims our economy has been paralysed by the potential we might leave the EU.

And just as the UK economy has sustained growth into the referendum vote, as it did ahead of last year's

General Election and the Scottish referendum before that, so I am convinced it will continue to expand were

we to indeed ‘Leave’.

So then rather than feel a sense of guilt or irresponsibility from encouraging we Leave as a Briton of Greek

extraction I am proud to do so. Because if by leaving we trigger a set of events which help extract Greece and

Cyprus from their present penury within the EU, then I win on three fronts.

PS George Osborne is some athlete. He has after all leapt across yet another wide credibility gap. It is absurd

of him to suggest tax rises and spending cuts in response to a vote to ‘Leave’. The pound will fall, sure. This,

however, has no negative fiscal transmission mechanism, unless we have a Gilt shock. And that market has

been remarkably sanguine in the run up to the Referendum, and I am convinced will continue as such were we

to vote Leave. Moreover, since we cannot formally ‘Leave’ for an interregnum having voted out, we will not

lose Single Market access. Neither will we lose this access once we get a pro forma Deep & Extensive Free

Trade Agreement akin to the recent ones written – in very short order – to Ukraine and Turkey. What the EU

says it will do and how it would act in the event of Leave are quite different. So too Rolls Royce and so too

Goldman Sachs and so too...

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Scottish Referendum UK Election

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40

21. ‘Remain’ simply won’t wash

I have maintained that a great deal of what has been claimed concerning a UK vote to ‘Leave’ the EU has

involved imagination well wide of any possible economic reality. Since others have taken these flights of

fantasy, I see no reason why I shouldn’t also take an intermission from reality, in the form of a TV break.

I am particularly mindful of those classic TV ads where to prove product superiority our clunky pre-plasma

screens would be filled by a dinner plate one half of which it was claimed had been cleaned with the branded

washing liquid being promoted, and the other by a generic store brand. As viewers we could clearly see the

difference; pristine clean on one side, and the persistence of stubborn stains on the other. Simple stuff but it

made us believe in “Fairy’s”.

We’ve been told the UK is practically evenly split on attitudes towards the EU. Well, just imagine we could

divide the UK into two parallel post-referendum realities. Those wishing to ‘Remain’ could do so on one side,

and those keen to Leave on the other Each side could then test the veracity of ‘Remain’ and ‘Leave’ claims.

Such trickery is, of course, the making of “Mad Men”. All the same I have already come clean on which side I’d

choose to be in what has been a very dirty advert for the established order.

Let me close by turning my Wilde imagination to what one of my literary hero’s might have written

considering matters. Impertinent as it is to suppose he might have written, “Remain, when they are trying so

hard to keep you! My dear, Leave and see just how much harder their efforts to keep your affections”. I will

now finally Foxtrot, Oscar.



41

-----------------------------------------------------------------STOP PRESS-----------------------------------------------------------------

I have been told repeatedly that it is surely better to be in a tent peeing out than peeing in. My response is

that when the tent is on fire, the best thing to do for all concerned is to step outside and pee onto it.

The ‘sage’ stayers Emma Thompson and Eddie Izzard claim “we need fewer borders, not more”. In the event

the vote is ‘Remain’, I take it they will open the electric gates and turn off the CCTV cameras to their many

homes so as to allow us all ‘In’ to celebrate.

The FT recently ran a leader “Vote Leave is damaging Britain’s political culture” I was particularly struck by its

blandishments towards HM Treasury, the Bank of England and its Governor. I wondered was this the same

Treasury which in 2010 was stripped of its forecasting responsibilities, because it had lost credibility with

‘markets’; these handed instead to the Office for Budget Responsibility? Stripped I need to add by the very

Chancellor who has recently called upon it to forecast the economic consequences of Brexit. Moreover was

this the same Bank of England which is failing to hit its mandated inflation target, forcing its Governor to write

apologetic letters to the same Chancellor who appointment him with such pleasure? And are these the same

two institutions which worked so hard at no inconsiderable cost to our foreign reserves, to keep us within the

EMU in 1992? I was just wondering whether there was some mix up in names.

Truly THE END

"If I speak, I am condemned.

If I stay silent, I am damned.

Who am I? Must I lie?

How can I ever face my fellow men?

How can I ever face myself again?"

This has truly been an experience of ‘Les Miserables’ proportions.

THE END



42

Toscafund Discussion Papers

Britain stands up – Better to exit European Union, February 2016

Britain’s Property Credentials – a report commissioned by the British Property Federation, January 2016

UK Private Rental Sector – Multi-Year Growth, July 2015

Prime Central London Residential Property, March 2015

The 2015 UK Election Outcome, January 2015

Growth of Britain’s Primary Cities, October 2013

Banking-on positive change in London’s property markets, 19 April 2013

Where in the world is this looming food price crisis? 1 March 2013

Britain’s Got Growth II: beating Germany on penalties, 17 January 2013

Seeing a quite different island in 20/20, 21 September 2012

Britain’s Got Growth, 31 May 2012

The building storm over Cyprus – Update, 18 May 2012

The Darkest of Greek Dramas: A Play for Survival, 16 May 2012

London 20/20 – Update, 30 March 2012

Update: Plotting North Korea’s path from regime-change to reunion, 20 December 2011

A Western Balkans crisis: A Europe wide problem, 2 November 2011

Plotting North Korea’s path from regime-change to reunion, 13 September 2011

Update: Scottish fiscal independence by 2015?, 13 June 2011

Cape Fear; South Africa’s chilling outlook, 18 March 2011

Scottish fiscal independence by 2015? 26 July 2010

Clouds darkening over Cyprus, 22 April 2010

Australia and Japan The best and worst of the G20, 26 March 2010

Who could possibly laugh through a Greek Tragedy? 8 February 2010

An employment outlook for London in 20/20, 13 January 2010

An A to Z journey into the economic future, 14 December 2009

An outlook for Canada & Mexico: Seismic Continental drift, 10 November 2009

Taking lessons in history, 5 August 2009

The REAL interest rate story, 20 July 2009

Toscafund Economic Papers

Issue 34 – An Encomium on Britain, mostly England

Issue 33 – Don’t get your Chinese order wrong – July 2015

Issue 32 – False Chinese Whispers – May 2015

Issue 31 – EXITSTENTIAL thinking, March 2015

Issue 30 – 2015, Thank you for reading, December 2014

Issue 29 – My grateful nation, October 2014

Issue 28 – UK housing issues and solutions, July 2014

Issue 27 – Scotland’s Special Issue, June 2014

Issue 26 – Just lots of boring words, May 2014

Issue 25 – Vive la difference, April 2014

Issue 24 – Europe in crisis again, as Britain stands out, March 2014

Issue 23 – It’s all just talk really, January 2014



43

Toscafund Asset Management LLP

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information Toscafund undertakes no obligation to provide the recipient with access to any additional information to update or correct

the information.

The information contained in this document does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any

securities or products in any jurisdiction in which such an offer or invitation is not authorised and/or would be contrary to local law or

regulation. Specifically, this statement applies to the United States of America (“USA”) (whether residents of the USA or partnerships or

corporations organised under the laws of the USA, state or territory), South Africa and France. Any offering is made only pursuant to the

relevant offering document and the relevant subscription application, all of which must be read in their entirety. No offer to purchase

securities will be made or accepted prior to receipt by the offeree of these documents and the completion of all appropriate

documentation.

Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable

taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant to the

subscription, purchase, holding, exchange, redemption or disposal of any investments in the Funds. In certain jurisdictions the circulation

and distribution of this document and the sale of interests in the Funds are restricted by law. The information provided herein is for

general guidance only, and it is the responsibility of any person proposing to purchase interests in any of the Funds to inform himself,

herself or itself of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Prospective investors must determine

that: (i) they have the authority to purchase interests; (ii) there are no legal restrictions on their purchase of interests; and (iii) the offer or

sale of interests is lawful in the jurisdiction applicable to them.

Funds managed by Toscafund have agreed to modify investment terms for certain investors for bona fide commercial reasons, subject to

applicable law and regulation. Lower performance fees were negotiated in the case of certain institutions and individuals who made

substantial investments or who agreed to specified lock-up periods. An investor was also provided with the right to the same preferential

treatment agreed with (if so agreed) subsequent similar or smaller investors. None of the investors with whom modifications have been

agreed have any legal or economic links with the funds managed by Toscafund and/or with Toscafund. To the extent there have been any

modifications, these have not resulted in an overall material disadvantage to other investors.

No liability is accepted by any person within Toscafund for any losses or damage arising from the use or reliance on the information

contained in this document including, without limitation, any loss or profit, or any other damage; direct or consequential. No person has

been authorised to give any information or to make any representation, warranty, statement or assurance not contained in the relevant

offering document and, if given or made, such other information, representation, warranty, statement or assurance may not be relied

upon. The content of this document may not be reproduced, redistributed, or copied in whole or in part for any purpose without

Toscafund’s prior express consent. This document is not an advertisement and is not intended for public use or distribution. The source of

all graphs and data is as stated, otherwise the source is Toscafund.

For Swiss prospective investors: The Fund has not been approved for distribution in or from Switzerland by the Swiss Financial Market

Supervisory Authority. As a result, the Fund’s shares/units may only be offered or distributed to qualified investors within the meaning of

Swiss law. The Representative of the Fund in Switzerland is Bastions Partners Office SA with registered office at Route de Chêne 61A, 1208

Geneva, Switzerland. The Paying Agent in Switzerland is Banque Heritage, with registered office at Route de Chêne 61, 1208 Geneva,

Switzerland. The place of performance and jurisdiction for Shares/Units of the Fund distributed in or from Switzerland are at the

registered office of the Representative.

Past performance is not an indicator of future performance and the value of investments and the income derived from those investments

can go down as well as up. Future returns are not guaranteed and a total loss of principal may occur. Please note that performance

information is not available for five years.

© 2016, Toscafund, All rights reserved.

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