EU Referendum: The biggest risk management decision you’ll ever make

The majority of the enquiries we receive at Experts for Expats are from expats requesting financial information and advice.

During the initial consultation, the first thing any of the consultants in our network do is conduct a risk profile analysis to identify the individual’s propensity to take risks.

Any investment decision requires an understanding of this most fundamental element of someone’s persona. With investments, there can be amazing rewards to be had, however, in nearly all cases the greater the potential reward, the greater the overall risk of making that decision.

Of course, there are never any guarantees when making an investment – even putting money into a savings account can be risky, despite the minimum rewards (if you consider the current low interest rates).

However, to be able to understand the progress towards the reward, the adviser will also create a plan with key milestones which enable everybody involved to assess the progress once the decision has been made.

In truth, these are the fundamental requirements with any decision making process: risk vs reward.

The EU Referendum, the decision whether the UK should remain or leave the EU, is no different in this regard. But do we have the information we need to make this decision?

Whilst those who are undecided are still calling to be told “the facts”, what they need, in reality, is a proposal.  A risk management strategy to address the likely outcomes of any given course of action. 

The UK is currently in a system with is established. Processes are known. Regulations are known. Democracy is in place (to a degree). The benefits and drawbacks are all too familiar. The rewards have been seen for decades – the UK economy has grown to being the 5^th largest economy in the world – despite numerous recessions.

The pound has remained strong and investment in the UK has remained steady. Yes, there are risks. The population continues to increase, imports are greater than exports and the future is still an unknown. However, the overall future of the UK is pretty secure – despite all of the scaremongering.

The UK can influence the EU from a position of strength and authority.

That is not to say that if the UK were to vote leave that the UK economy would not continue to grow, however, the lack of overall plan creates a level of risk which means that the future is a total unknown. Ideally, we need to hear from the government what it would plan to do to prevent various risks materialising should we leave the EU.  However, as both the PM and the Chancellor are campaigning for remain, such plans are unlikely to be forthcoming. Such is the flawed nature of the split party campaign.

Consider the following key factors which are, as yet, unknown and unplanned – and in the event of Brexit, on the 24^th June plans would have to be created to manage each and every one of them:

UK Government

While there are rumours about David Cameron’s position as Prime Minister following the referendum, whether he remains as PM is unknown. He may resign, he may seek a leadership contest, he may request an emergency budget, he may call a General Election. However, there is no indication of what will actually happen. He doesn’t even appear to have a plan or exit strategy if he were to remain as Prime Minister.

Membership fees

The leave campaign has so far spent the reclaimed membership fees several times over. One day it’s being used to build a new hospital every day, the next it’s subsidising border controls, it’s also been guaranteed to boost investment in trade and industry and offset potential newly imposed trade tariffs. And yet, all claims have been made by people with no authority to make such decisions.

And what of the opportunity cost. Currently landowners receive subsidies, as do areas of the UK which are neglected by the current government.

Due to the lack of plans, we don’t even know if we will have to pay for membership to any other groups, such as the EEA.

Migration and border control

Nigel Farage (who is not an MP) would have you believe that we would instantly extend the UK’s existing points based system of immigration for non-EU migrants to cover EU migrants to the UK.

However, without clarification of whether the UK will remain a member of the EEA (which requires free movement of EU citizens) this could be a moot point.

The current government has also cut border control resources over the past few years, which means an increase in restrictions would lead to a requirement for more resources.

Finally, there is no evidence to suggest that Brexit would successfully solve the immigration ‘problem’ it claims we have, particularly when related to housing.  It could even make things worse. With so many non-EU migrants and refugees currently seeking asylum in the UK in Calais, there are no clear plans for how an agreement with France would manifest. There are fears that French government could open the gate or that the UK could be flooded with immigrants in the time it takes to implement our departure from the union – but in truth it’s a complete unknown.  

Existing regulations and laws from the EU

A major debating point is that the UK would regain sovereignty over laws and regulations. However, we have no clarity on what these would be. We know that if the UK desired trade agreements with the EU, certain quality and controls would need to remain in place.

There is no reason why the government could not have drafted any or all of these replacements to give voters a clear indication of what the Government would seek to introduce.

Some people fear that all Health and Safety, Human Rights would be under threat – and while their complete abolition is unlikely, anything is possible with regards to rewriting the rules.

Healthcare and benefits

Without clarity on how potential trade deals would be negotiated, it is also unclear whether benefits and agreements such as the European Health Insurance Card would remain eligible for non-UK nationals in the UK and also for British people abroad.

If the UK negotiates membership with the EEA, it would remain. But without this clarity, we simply do not know.

UK breakup

The SNP in Scotland have made it relatively clear that in the event of Brexit, they would push for a second referendum to seek Scottish independence (which would subsequently lead to Scotland applying for EU membership). This is probably the clearest “next step” for the Brexit campaign.

While many Brexiters would actually welcome a Scottish Referendum, Scotland is a vital cog in the UK economy.

And for the UK, this would be an additional situation which is not in the least planned, and therefore creates an even greater risk for Brexit.

Tariffs and trade

As has been pointed out by many people (leave and remain), international trade would not cease if we left the EU - not withstanding the fact that we could still remain in the EEA and therefore continue free trade within the EU.

If the UK votes to leave and does not remain in the EEA, in the years following the decision the EU rules of free trade would still apply anyway (as well as the EU regulations) until replacement trade agreements were in place.

Once the negotiations have been concluded it is possible tariffs would have been applied to both imports and exports from/to EU countries - although the level of such tariffs is a complete unknown, similarly whether these tariffs would simply be passed to the consumer, increasing prices.

What we do know is that the UK imports significantly more than it exports, and therefore any newly introduced tariffs would overall be negative to the UK economy.

One positive of this is that the UK would be forced to increase its manufacturing and agriculture output, and encourage people within the UK to "buy British" while exporting the surplus. Increased costs of importing may require this. However, how much capacity do we have to make these core changes to our economy? Could we actually start manufacturing when most of the commodities used would be imported and therefore be more expensive?

The problem with needing imports, as opposed to wanting them, is that it creates a "sellers market", meaning the UK could have diminished negotiating power.

But once again, without a clearly communicated plan for trade, we simply do not know the overall affect. There is a chance it could be beneficial to the UK, but equally the converse could be true.

Votes should be based on a risk/reward assessment not hope or emotion

This article is not designed to scaremonger. After all, there are vast numbers of people who take risks, and plenty of whom reap the benefits, albeit with an informed plan.

However, there are far more people who are risk averse – and leaving the EU is a decision which cannot easily be reversed. If Brexit leads to recession and it’s considered a “terrible mistake”, any application to re-join the EU would be very hard to bring about and would most likely require a vote from within the EU to decide the UK's fate. We may have burned our bridges.

On the contrary, if the UK remains in the EU for now, the prospect of a second referendum within the next ten years is highly likely – especially if UKIP continues to gain a foothold in UK politics.

For risk averse people who would consider the UK leave vote, this creates an opportunity to seek the plans and reassurances from those in power within the UK.

It would also offer the opportunity to continue reforming the EU from the inside – with the clear understanding that there will in all likelihood be another vote to leave.

When making up your mind, consider how risk averse you are and whether you would be willing to take a leap in the dark at this point in time – and remember if we remain in the EU it certainly won’t be the last time you get to choose.