Government Briefing Note for Oireachtas Members on UK-EU Referendum

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Brook Palmer
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Government Briefing Note for Oireachtas Members on UK-EU Referendum Summary The process of defining a new UK-EU relationship has entered a new phase following the decision of the EU Heads of State or

1 Government Briefing Note for Oireachtas Members on UK-EU Referendum Summary The process of defining a new UK-EU relationship has entered a new phase following the decision of the EU Heads of State or Government of 18 February 2016 and prior to the referendum in the UK on 23 June The following points are relevant: a) the basic position taken by the Government is unchanged i.e. Ireland wants the UK to remain part of the EU for reasons relating to the economy, Northern Ireland, the effectiveness of the EU itself and the Common Travel Area; b) The Government is fully conscious and respectful of jurisdictional boundaries and the fact that this is a decision for the UK itself; c) efforts to raise awareness and voter registration in the Irish community in Britain and voters in Northern Ireland are important, but should be seen in context. The population of the UK in the 2011 census was c.63 million, of which c. 828,000 (1.3%) self-identified as Irish only. Of course, not all may be registered to vote. By way of context, as a proportion of total UK population, Northern Ireland represents 2.9%, Scotland 8.3%, Wales 4.8% and England 84%. d) ongoing work by Government Departments and key stakeholders will continue to deepen our analysis of the risks and key issues that would require priority attention in the event of a UK vote to leave; e) It is not yet possible to fully develop contingency plans dealing with a leave outcome because the terms and conditions of a possible UK exit are unknown and it would almost certainly take at least two years of intensive negotiations to have new arrangements agreed by the remaining 27 Member States, including Ireland; f) On a much smaller scale, issues would arise also in the event of a remain vote including the question of how changes to UK social welfare / child benefit arrangements as agreed by the EU would impact on newly-arriving Irish citizens. g) the Government will continue to monitor developments closely and will ensure that it is as prepared as possible for either outcome in the June referendum, including through the work of relevant cross-departmental senior officials groups. 1

2 1. Background Following the UK general election of May 2015, PM Cameron delivered on his commitment to negotiate more favourable arrangements for continuing British membership of the EU and to hold a referendum on the issue (23 June 2016). The EU Heads of State and Government agreed a New Settlement for the UK in the EU on 18 February The question posed will be a straight choice for UK voters between remain in the EU or leave the EU. The vote will be an aggregate vote for the entire UK. There has been speculation and public commentary about the potential implications for the long term cohesiveness of the United Kingdom in the event that certain regions vote strongly to remain but there is an overall UK vote to leave. All through the process, the Government s position has been that Ireland s best interests are served by the UK remaining within the EU. This is for four main reasons: economic (over 1 billion euro of trade between the two countries every week); Northern Ireland (EU supports and gives wider context to the peace process); the effectiveness, internal balance and credibility of the EU itself (the UK is an important like-minded ally, a major player and positive influence on the EU) and the Common Travel Area between Ireland the UK. 2. Pre-referendum phase While the Government has made clear its preference for the UK to remain within the EU, it has also emphasised full respect for jurisdictional boundaries and the sovereign choice of UK voters. Ireland has a unique relationship with the UK, which is recognised widely, including within the UK itself. We are co-guarantors of the Good Friday Agreement. We have the UK s only land border with another country and share a Common Travel Area. Special arrangements in a number of areas apply to Irish citizens in the UK and to British citizens in Ireland. Irish citizens living in the UK will have a vote. Voters in Northern Ireland are estimated to be c. 1.2 million. Around 120,000 UK citizens living here are also entitled to vote. There are likely to be c.46 million people registered to vote in the upcoming referendum: England c.38 m, Scotland c.4m, Wales c.2.2m, Northern Ireland c.1.2m. In Britain, published polls seem to indicate that England currently has the highest concentration of potential leave voters (with important regional variations) with remain sentiment most pronounced in Scotland. Voter turnout and the final decision of the don t knows would also seem likely to be important factors in all parts of the UK. Parliamentary/Assembly elections in Northern 2

3 Ireland, Scotland and Wales, and English local elections including in London, will be held on 5 May. There are 827,000 residents in the UK who identified themselves as Irish only in the 2011 census about 1.3% of the UK population. Those over 18 years of age would be eligible to vote in the June referendum. Most of the Irish community in Britain is resident in England. Younger professionals are perhaps more likely to be found in London and longer-term residents are likely to be somewhat more geographically dispersed in England (particularly Liverpool and Manchester). In the UK as a whole age, socio-economic status and level of education appear to be significantly correlated with likely voter opinion. It is not clear if and how far voting preferences in the referendum among the Irish community as a whole may deviate from this pattern. 3. Issues arising from a remain vote At the European Council in February 2016, EU Heads of State and Government decided on a New Settlement for the United Kingdom within the European Union. Measures were agreed in four areas: (1) Economic governance; (2) Competitiveness; (3) Sovereignty; and (4) Social benefits. If the UK votes to remain in the EU, the terms of the Decision, which is legally an international agreement and has been registered at the United Nations, would take effect as soon as the UK has informed the European Council of its decision. The economic governance arrangements, which define the principles of the relationship between euro-ins and outs and establish a safeguard emergency brake procedure, would apply from that date. So too would the commitments to establish enhanced subsidiarity and burden reduction implementation mechanisms. The red card procedure for national parliaments would be introduced. Elements of the texts on economic governance and on the application of the concept of ever-closer Union to the UK would also be incorporated in the Treaties at the time of their next revision. Measures in relation to social benefits and the abuse of free movement would be implemented by amending or complementing existing EU regulations and would therefore need to be agreed by the European Parliament and the Council of Ministers before they could take effect. There is an expectation that this would proceed swiftly. Social Benefits Under the social benefits heading, agreement was secured in two key areas: child benefit and in-work benefits. 3

4 On child benefit payable in respect of the children of EU migrant workers not living in the same state as their parent(s), agreement was reached on the option of indexation to bring the payment into line with standard of living in the state of residence. The measure, which would be open for any Member State to implement, would apply in respect of the children of all EU workers newly arrived in that Member State, and of existing EU workers after a four year period. Any decision to avail of this option would need to be based on a range of factors, including the extent of the administrative burden which might arise. On labour migration, a safeguard mechanism was agreed that would allow access to in-work benefits by newly-arrived EU workers to be limited for a total period of up to four years, with payments to be graduated upwards over that period. Use of the safeguard mechanism could last for a period of up to seven years. This element in particular was designed to reduce any pull factor caused by the distinctive UK social welfare system, and the expectation is that it will be used only by the UK. Such in-work benefits are essentially intended as pay top-ups for lower-paid workers and are not available to most workers, of whatever nationality. The Government was very conscious throughout the negotiation process of the potential implications of these changes for some Irish workers moving to the UK. Consequently, the situation regarding the Irish in Britain and their unique status over a long period of time, including in regard to the Common Travel Area, has been raised bilaterally at the highest political and official levels, including by the Taoiseach in his meetings with Prime Minister Cameron, and the Minister for Foreign Affairs meetings with the UK Foreign Secretary. The British Government is therefore fully aware of our concerns and of the particular situation of the Irish in Britain. Officials remain in contact. In the event of a remain vote, re-engagement on this issue will be necessary as specific new rules are prepared. 4. Issues arising from a leave vote If a Member State votes to leave the EU, a period of two years is provided for under TEU Article 50 during which its exit terms would be negotiated between it and the other Member States. Although negotiations with the UK could take longer than two years, any extension would need to be agreed unanimously by the remaining 27 EU Member States. The structure of such negotiations is unknown. It is only as they mature that the shape of a future EU-UK relationship would begin to emerge and the full extent of the likely impact on Ireland would be clearer. Obviously, as a general principle the closer the relationship negotiated between the EU and the UK, the less problematic the impact on bilateral Ireland- UK links would be. However, it is not clear at this stage which model the UK would seek to pursue in any negotiations that would follow a leave result. In any new arrangements, Ireland would have particular issues to be addressed. Based on the progress of the negotiations and on continuing in-depth analysis of the effects of 4

5 proposed new arrangements, these would be advanced in the negotiating process. We would as necessary seek to emphasise the very particular relationship we have with the UK, including on Northern Ireland. It should be recalled, however, that in the negotiations we would be one of twenty-seven Member States on the EU side, and that in matters of EU competence the scope for bilateral arrangements has to be seen in that light. It is evident that a leave result would carry economic, trade and other policy/ legal / operational risks for Ireland, as indeed it does for other countries that trade heavily with the UK and for the EU as a whole. However, a number of economic analyses have suggested that the impact on Ireland would be proportionately greater than on other EU Member States. If the UK were to leave the EU, most economic forecasts, including that of the UK Treasury, have indicated that its GDP will decrease relative to a position where it is still a member of the EU. Studies have suggested variously that the negative impact on the UK s GDP could range between 1% and 5%. The ESRI has suggested that, in turn, every 1% decrease in UK GDP could normally be expected to result in a decrease of 0.3% in Irish medium term GDP/GNP. Clearly, strategies would be developed and implemented to mitigate these adverse effects on the Irish economy to the greatest extent possible, including through development of new export markets and competing intensively for new and mobile Foreign Direct Investment flows. Work has been undertaken in Government Departments to scope the range of risks and opportunities that would fall to be addressed in the two year period following a Leave vote. This analysis will continue to be deepened in advance of the referendum. Key areas that have been identified in this context include: Trade with 1.2bn worth of trade every week between our two countries any potential new trade barriers would present a major risk to our economy. ESRI estimate that overall, trade between the UK and Ireland could fall by as much as 20% over the medium term. Much depends on the nature of the new arrangements that would apply between the EU and the UK. The agri-food business in particular, which has a significant UK market, would be particularly vulnerable. Many sectors trading with the UK are employment-intensive so that there may be disproportionate adverse impacts on jobs here. Market volatility The sterling/euro exchange rate is key for Irish companies in the traded sector and periodic fluctuations have already been seen (e.g. from around 0.70 in December 2015 to 0.80 in March 2016). There are suggestions that a leave vote could weaken sterling by 10-15%, moving closer to parity with the Euro in the aftermath of the referendum. This has implications, inter alia, for Irish exports to the UK and tourism. Migration any changes to the common travel area in respect of freedom of movement could have significant repercussions for migration flows between Ireland and UK. 5

6 Social Welfare and Public Services: new arrangements impeding free movement to the UK could potentially cause some displacement. Energy market issues could arise in respect of security of supply and the Single Electricity Market. Concerns also exist about the impact of energy cost increases on Ireland s competitiveness arising from tariffs on energy imported from the UK our sole source of interconnected power. Northern Ireland Apart from EU funding as a support, the EU provides a broader context for embedding peace and post-conflict transition. North-South cooperation has been greatly facilitated by both countries being Member States of the EU. Foreign Direct Investment - in the event that the UK votes to leave the EU, some FDI flows may be diverted to elsewhere in the EU, including in financial and other business services. There would presumably be intense competition between EU countries, including Ireland, to attract new investment of this type. 5. Next Steps The Government will continue to monitor developments closely and will ensure that it is prepared to the fullest extent possible for either outcome of the UK referendum in June. This will be done through the work of cross-departmental senior officials groups, continuing dialogue with stakeholders across all relevant sectors, and official and diplomatic contact with the UK, other EU Member States, and the EU Institutions. 26 April

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