Brexiting yourself in the foot

It looks as if the "Leave" camp will focus on immigration for the remainder of the referendum campaign. Judging from the latest polls this might turn out to be a winning strategy.

"Leave's" portrayal of "Remain" as representatives of rich London-based elites who are the main beneficiaries of EU integration resonates most strongly in regions outside of London. Their economies have been struggling since the 2008 crash.

But new research co-authored by the Centre for European Reform and the University of Groningen throws up an unexpected irony: it turns out that it is these regions, not London and its rich commuter belt, that have most to lose from leaving the EU.

There is a positive correlation between a region’s level of economic integration with the EU and that region’s Euroscepticism.

We looked at the proportion of a region’s economic output which is sold to the rest of the EU - either directly, in the form of exports, or indirectly, with domestic companies supplying goods and services to exporters - and compared it to findings from the British Election Survey, which asks people how they would vote in the EU referendum and breaks down to a constituency level.

We saw that London and Scotland, the most pro-EU areas of the UK, are less economically integrated with the EU than the UK average. Meanwhile, outside the prosperous south east, rural counties such as North Yorkshire and Dorset, and more urban ones, like West Yorkshire and Lancashire, are more integrated with the EU, and also tend to be more Eurosceptic.

London exports more per person than any other region in Britain, so to many observers, the fact that London sells less to the EU will be rather surprising - especially to those who think the EU only benefits the “metropolitan elite.” There are three reasons why. First, London’s trade is more global. Typically, London sells around 10 percentage points less of its exports to the EU than other regions. This is because the services sector is less dependent on EU demand, and London and the South East are heavily oriented towards services. By contrast, the manufacturing, agriculture, mining and extraction, and utilities sectors are more skewed towards EU markets, and regions outside of the London commuter belt tend to be more specialised in these sectors.

Second, London’s economy is very large and diverse - a large factory in another region will make up a bigger proportion of its GDP. Therefore, every pound of exports emerging from the London economy accounts for a smaller share of London’s economy than is the case in other regions. Third, London’s diverse economy allows the city to adjust and respond to economic shocks much more rapidly than other UK regions, as we have witnessed in the years since the 2008 economic crisis: London’s economy is growing while other regions continue to struggle. London is therefore both less dependent on the EU, and also more resilient to a post-Brexit shock than all other UK regions.

None of the usual arguments for why other British regions are more Eurosceptic closely match the data. Poorer regions tend to be more Eurosceptic, but the relationship is weak - and if we take London out of the data, it almost disappears. The average age of a region’s population does not seem to make much difference. Education levels are a slightly better indicator - regions with more people who have some tertiary education tend to be less Eurosceptic, but the correlation is not very close. The best predictor by far is attitudes towards immigration. Citizens of regions where, according to the British Election Survey, immigration is perceived as damaging are much more likely to vote for Brexit.

A further irony is that these regions tend to have fewer immigrants than more pro-EU areas of the country - and they have more to lose economically from Brexit. Therefore, far from ignoring the economic interests of people living in the English shires, campaigners on the “Remain” side are trying to encourage these people to focus on their economic interests rather than their dislike of immigration. Immigration affects the day-to-day lives of people in many of these areas much less than people who live in England’s cities, while the economic benefits of integration with the EU are relatively more important to these regions.

At a national level, the referendum debate is boiling down to a trade-off: lower immigration by leaving, or secure the economy by remaining. But for eurosceptic regions that trade-off does not exist: by voting to leave the EU, the denizens of these regions would shrink immigration to London and other cities - while hurting their own region’s economy. They truly might be Brexiting themselves in the foot.