Britain’s historic referendum on EU membership may come down to the effect it has on economy and financial markets.

When the big boys on Wall Street and in the City of London see something that threatens their game they have the capacity, the influence and the financial grunt to do something about it.

So, it should come as no surprise that Bank of America Merrill Lynch this week labelled a British exit – or ‘Brexit’ – from the EU as a “major threat to the stability of financial markets”.

The debate clearly has already moved the markets — the values of sterling, equities and property have all experienced volatility in London and around the globe.

But even though the consequences of the vote could be dire, the result may largely be in the hands of the individuals on the two sides of the debate — the ‘Remain’ and the ‘Leave’ campaigns. Both take in figures from the government, the opposition, business and beyond.

Among those backing the ‘Remain’ side are international heavyweights Barack Obama and Angela Merkel – as well as British PM, David Cameron and his counterpart Labour Party leader, Jeremy Corbyn.

On the ‘Leave’ side is former Cameron government welfare minister and one-time Prime Ministerial candidate, Iain Duncan-Smith and a raft of right-wing Tory MPs. Also pushing for an exit from Europe is charismatic former London Lord Mayor Boris Johnson and the head of the Euro-sceptic right-wing UKIP party, Nigel Farage.

There have been scare campaigns launched by both sides.

The ‘Leave’ side says Britain will have 3 million migrants a year by 2030; while the ‘Remain’ side talks of a ‘triple threat’ to jobs, wages and prices.

However, much of the debate around Brexit has been about levels of migration from the EU to Britain; the popular preconception being that there are hordes of Poles and Lithuanians coming to Britain to get jobs or take advantage of the nation’s comparatively generous welfare benefits.

But the effects will be largely economic.

Economic modelling has shown it will be very difficult to deliver deep cuts in immigration if Britain leaves the EU.

Jonathan Portes

And if cuts of 50 per cent were achieved, the long-term consequences would lead to a 2p increase in income tax, according to Jonathan Portes, a former chief economist at the Cabinet Office.

Writing in a paper for the National Institute of Economic and Social Research published on Tuesday, Portes adds that leaving the EU would take Britain into new territory for immigration policy.

He says the option of voting to leave but retaining free movement for EU citizens – to qualify for access to the single market – would mean only a small reduction in migration to Britain.

Both Switzerland and Norway, neither of whom are members of Europe’s economic union, have higher levels of migration from within the EU than the UK does now.

Portes says that if the UK chose to end free movement, it would be difficult to deliver a reduction of net migration to the touted ‘tens of thousands’ without significant economic consequences and a large impact on industries that rely on low-skilled migrant labour.

In the latest edition of the National Institute Economic review, Portes says that Migration watch has estimated that applying the current non-EU migration rules to EU nationals would reduce the current 323,000 net migration total by about 100,000 so further cuts in non-EU migration would be required to meet the target.

Portes says that in the short term a reduction in migration on this scale would jeopardise the government’s hopes of meeting its fiscal targets.

In the longer term, taxes would have to rise to compensate for the loss of a significant positive impact of migration on public finances.

Portes says that a highly restrictive immigration policy might have a small effect on wages for low-skilled workers but little or none for medium and highly skilled workers. However, this effect on unskilled wages would be more than offset by higher taxes or public spending cuts so real post-tax incomes would fall.

“This means that a vote to remain will unequivocally be a vote for the status quo in this area. A vote to leave, however, will take us into new territory for UK immigration policy, with potentially significant consequences; as yet, we have almost no detail on what those might be,” he says.

The US’s Home Secretary, Theresa May has said that leaving the EU would not be a “silver bullet” for the issue of immigration in Britain.

She said that even if Britain leaves the EU, it would have to sign up to free movement rights for EU citizens if the UK wished to continue to have access to the European single market.

So, with polling currently sitting at 46 per cent in favour of remaining and 44 per cent wanting to leave – and referendum scheduled for June 23 – the next few weeks will be very interesting.

Laurie Nowell
AMES Australia Senior Journalist