What will Brexit mean for Wales?

Presentation by Dr Hywel Ceri Jones at the Conference held at the University of Swansea organised by the Morgan Academy and Schools of Management and Law

25th November 2016

Let me say at the outset that I was one of the 14 million Remainers, though I was also in favour of radical reform of the EU and indeed of the UK.  I campaigned to remain in the EU and I was, and continue to be, distressed by the result of the vote, particularly in Wales and not least in Swansea – my home valley.  I am more and more concerned about what the future holds for Wales, and the discussions today have done little to change this view.

Like many others, I am deeply perturbed both at a personal level and for our young people on the possible loss of my rights to the benefits of European Citizenship.  They complement and enrich my privileges as a citizen of the UK.  As a Welsh European, I simply do not accept that the UK Government can move to eliminate these rights without the necessary scrutiny and approval of Parliament.  That is why the forthcoming deliberations in December in the Supreme Court are so critically important.

It is in my view totally anachronistic, given the concern of some but not all Brexiteers to stress the importance of respect for sovereignty and rule of law in the UK, that the Government has been seeking to exclude Parliament from approving and motivating the exercise of Article 50 powers.  What better way to demonstrate to the British public that our Parliament has taken control of the destiny of the country.

I have touched on the importance of the question of individual rights, but the same applies equally to the position of enterprises, as the consequences of Brexit go well beyond those of concern to individuals, considerable as they are. International enterprises considering investing in the UK and anticipating workers settling here will have to consider the consequences of those workers not having the same access to public services while here as they would have previously enjoyed as EU citizens within a member state.  Decisions will need to be taken as to the extent to which rights currently enjoyed by EU citizens resident in the UK will be replicated for them as well as for UK citizens following any Brexit.  Public and private companies are also legal persons and as such have rights which could be lost.

The same issues arise in reverse with regard to UK enterprises which wish to establish bases or branches abroad within the EU.  Their workers and their families currently enjoy a range of benefits, including health care, as a consequence of being EU citizens.  Whether such enterprises will be able to sustain the same presence – in terms of the number and quality of their workers – if and when those benefits are lost or are subject to question is unclear.  Nor can their continued existence be taken for granted.  Each benefit will be a matter for each Member State unless there is a firm agreement with the EU as a whole.

These problems will clearly affect UK enterprises seeking to attract skilled workers from abroad and skilled UK workers contemplating enhancing their prospects and experience through working abroad.  The net result might well be to decrease the quality of the UK’s pool of workers.  This all once again emphasises the importance of Parliamentary sanction for withdrawal, as Parliament should have the responsibility to scrutinise the proposed withdrawal in terms of its effect on such corporate persons.  I note that the High Court specifically referred to the rights of companies in its Judgement.

Both Wales and Scotland will intervene in the appeal to the Supreme Court. Both devolved governments will probably argue that the consent of the devolved legislatures should be sought before Parliament legislates to leave the EU on the basis that such legislation will change their legislative competences. This will be a significant intervention, as the Scotland Act and Wales Bill both provide that the UK parliament recognises that it should not normally legislate in ways which affect devolved matters without the consent of those legislatures.  We can all see the dangers here to the continued unity of the UK if these devolved arrangements are undermined, especially given the PM’s assurance that they would be fully involved in all stages of the negotiation process.  The parallel discussions taking place today in Wales of the British Irish Council may well reveal the extent to which the developing positions on Brexit in Scotland, Northern Ireland and Wales reveal common ground or divergences.

Internal Market and free movement of persons

To date both in London and here in Wales,the debate has centred primarily around the question of the importance of the internal market.  Carwyn Jones has called for a “full and unfettered” access to it as vital to the long term interests of Wales, whereas Nicola Sturgeon has put forward the Scottish case to continue to enjoy membership of the internal market.  I will not enter into the raging debate on the possible models the UK might seek to negotiate for the future.  I wish today to comment on the sensitive issue of the free movement of persons, one of the four fundamental freedoms (capital, services, goods and persons) of the EU’s internal market.  There has never been any thorough discussion on the pros and cons of this provision in the UK primarily because Farage and some of the tabloids succeeded in confusing this subject by bundling into one pot of negativity the question of free movement of European citizens, the problems of regular and irregular migration, border control and the handling of the refugee crisis, as well as the growing need for effective anti-terrorism measures.  The panel discussion this morning illustrated well the continuing confusions on this subject.

Earlier this week at another conference held at Cardiff I heard a leading Brexiteer argue the case to ensure the continued free movement of workers most especially to meet our needs for skilled labour in a number of sectors – aeronautics and engineering, agriculture and the food and drink industry, construction, public health (especially for the NHS) tourism and hospitality, financial services and so on.  In other words calling for some specific ‘opts back in’ within the framework of an overall EU opt out, presumably in the hope of the EU as a whole agreeing in the final negotiations to such derogations which the UK could pick and choose.

This is uncharted territory for the UK and for the EU, but an agreement along these lines, combined with access for the UK to the Single Market will be very difficult to secure without the EU putting at risk its own strategic commitment to the internal market, of which the freedom of movement is an integral part.  For the EU to open the way to a pick and choose approach could invite other Member States to do likewise and I would expect the newer Member States to resist fiercely.  This is why the likelihood of securing this seems so very slim.  It is in this spirit that I interpret President Tusk’s statement that the only choice on offer is between Hard Brexit and No Brexit.  That is why too the statements hitherto from Chancellor Merkel, President Juncker and others have been so uncompromising.

Preserving the integrity of the Single Market is especially important too at a time when the EU is reforming itself to strengthen its internal market arrangements to improve the free movement of services, coupled with the digitalisation of the internal market, precisely the kind of improvements which the UK would welcome and benefit from if it were to retain membership of the internal market.

This afternoon I want to raise briefly four points of policy concern to me with particular regard to Wales.

Firstly, the question of the free movement of researchers – not just because of its evident vital importance to our universities but also as a crucial factor in the UK- wide and Welsh strategy to invest more imaginatively in research and innovation so as to build our economy in a long term perspective, with greater mobilisation of the private and public sectors working in collaboration with universities. The case for the mobility of researchers was made powerfully during the referendum campaign but, as we know to our cost, was sidelined by other issues.  We need once more to spell out to the public the message so succinctly put by Stephen Hawkins – “free movement of scientists is as important for science as free trade is to market economics”. Given the fragile state of the Welsh economy and the likely impacts of Brexit in so many fields, I see this as a matter of serious concern.

Since 2015, as part of its continuing reform process, the EU decided to put university and higher education at the centre of its 2020 strategy to help drive the transformation of our economic and social situation.  Through the Horizon 2020 programme the aim has been to scale up cooperation between universities to tackle the most critical global problems we face, such as climate change and environmental sustainability, and health and ageing challenges.  Most importantly for Wales, it is helping us build up the stock and quality of research scientists where we continue to have a sizeable shortfall.

In defining its negotiating stance, I would urge the Welsh Government to place a high priority on participation in the EU’s strategy for investment in research and innovation, most especially continued participation in the Horizon 2020 programme which is already making an important difference in Wales. The free movement of researchers clearly needs to be examined in the overall context of the pros and cons of free movement of persons.

My second concern relates to the Erasmus programme which is already established as a world brand, connecting universities across the globe.  By 2020 5 ½ million Erasmus students will have participated and well over 4000 academic staff , involving virtually all universities in Europe . The growth of strategic inter-university partnerships backed by the programme has helped to embed the internationalisation of study experience in universities across Europe, enhancing their reputation and contributing to reform in the structure of degrees and qualifications .

My conclusion is clear: the Welsh Government should argue strongly the case for Wales, and indeed the UK to continue to participate fully in the Erasmus programme, seeing it as a powerful instrument of valuable long-term collaboration benefitting present and future generations of students . I believe it should be another top priority in the Welsh Government’s negotiating stance.  We should never forget that 75% of 18-25 year olds voted to remain, nor that 16-18 year olds were deliberately excluded from the vote despite the precedent of the Scottish referendum and the implications for their futures. This would demonstrate the strategic importance attached by the UK Governments to investment in students to build our economic and diplomatic future, as our own and foreign students will take up important positions all over the world in their future careers in many walks of life.

The European Investment Bank and Welsh infrastructure

My third concern is that a potentially serious consequence would be the cessation of substantial low cost long term lending by the European Investment Bank (EIB) in the UK, an issue barely mentioned during the referendum campaign. In Wales and in Swansea especially, we already have had good reason to value the role and interventions of the EIB, most spectacularly with the development of the second campus at Swansea University. We can today appreciate and applaud the results of the entrepreneurial energy of this university in securing the EIB investment and also its impact in south Wales on the creation of jobs.

The EIB is the EU’s “house bank”, the largest multi-lateral lender in the world. It specialises in lending for economically and viable infrastructure projects.  As a member of the EU and EIB shareholders, the UK automatically qualifies to receive EIB loans.  Like other large members, the UK has a 16.1% shareholding.

There is no precedent for an EIB shareholder leaving the EU.  Let us be clear: unless exceptional arrangements are agreed unanimously by the other Member States and shareholders, the presumption must be that if Brexit takes place, the UK as a non EU member will cease to be a shareholder of the EIB and then no longer qualifies for EIB lending.  It is true that around 10% of EIB lending has historically gone to non-EU members.  This has largely been channelled to developing countries such as former dependencies of Britain and France (or to countries aspiring to EU membership) as in central and eastern Europe.  It certainly cannot be assumed that the other Member States will wish to make a favourable exception for the UK.

At a time when the UK, and Wales especially, desperately need to retain the confidence of investors to promote economic growth and employment, the loss of substantial EIB funding and leverage would be a serious blow to the UK Government and of course to Wales .  This could have a damaging implications for example on the water industry in Wales, the developing lagoon projects, some of our hospital developments, as well as to key projects required to further the ambitions of the Swansea and Cardiff city regions as important hubs of development.

Jobs, Solidarity and Cohesion

 Let me conclude with what is our number one preoccupation: jobs now and jobs for the future.

We still have too many ‘black spots’ in Wales with deep-seated structural unemployment and unacceptably high levels of persisting poverty hitting families, children especially in both our urban and rural communities.   In Wales we have the second highest rate of child poverty after London in the UK, 40% of them in workless households. The most recent reports on our situation here in Wales are even more depressing. The noxious cocktail of joblessness, multiple deprivation and social exclusion is breeding insecurity and disaffection.  This problem needs to be attacked at the very heart of the Welsh Government political agenda and we will need all the ingenuity and smart initiatives possible to do so especially if we have to replace EU policy funding from which we benefit.

Over the past 15 years the EU’s Structural policies and funds (the ERDF and ESF) have helped to build some of the new infrastructures we in Wales need.  They have provided support for numerous job creation schemes and for community development, helped many thousands of people into jobs with financial assistance for their retraining and career development, boosted the numbers of apprenticeships, and improved our transport and other infrastructures in Wales.  ‘Jobs Growth Wales’ would certainly be much poorer without this substantial European contribution.

These Structural Funds are based on the EU’s cohesion policy.  The principle of economic and social cohesion – social solidarity in simple language – is firmly anchored in the EU Treaty. President Jacques Delors conceived it as the necessary counterweight to the internal market to ensure that disadvantaged regions throughout the EU would benefit from the economic fruits generated by the biggest trading bloc in the world.  We have seen as a result growing support from the EU to the development of active regional policies through the European Regional Development Fund (ERDF) particularly, and most recently EU backing to the development of regions committing themselves to smart specialisation, so critically important to Wales to boost our capacity to innovate and compete.

My key point this afternoon is to stress that in its negotiation with the UK Government, it is not enough for the Welsh Government to argue, as it must and has done, for a rock-bottom guarantee that the same level of funding be provided by the UK government for the future as has been provided through the EU. What is equally needed is for the Welsh Government to make the case for the UK as a whole to commit itself to this very same principle of social solidarity (social and economic cohesion) so that all parts of the UK will be treated fairly on the basis of their different needs, giving a clear demonstration of the political will to pull together in the common interest.  A UK-wide strategic commitment to such a policy would chime well with some of Theresa May’s rhetoric and could pave the way for the long term funding framework which Wales and indeed other regions desperately need.