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13 June 2016updated 27 Jul 2021 12:15pm

Why “it’s the economy, stupid“ may not be enough to see Remain over the line

The benefits of growth are more unfairly distributed than ever, says Neil James. 

By neil james

As the EU referendum campaign enters its final stretch, a flurry of polls have shown a narrow lead for Brexit. Seasoned election watchers will know that such crossover is commonplace over the course of campaigns: at similar moments, polls showed Labour edging ahead of the Conservatives in 2015, and a pro-independence majority in the Scottish referendum. The blip is being interpreted by many psephologists as merely a sign that undecided voters have woken up, and are giving serious consideration to both options.

Conventional wisdom still assumes that they will return to the security of the status quo by polling day, so overwhelming are the arguments in favour of Bremain. Furthermore, the Remain camp is betting that any doubters unconvinced by debate will be swayed by a sharp dose of market volatility.

To date, the Remain campaigners’ warnings of economic Armageddon have come across as academic abstractions, failing to filter through to the imaginations of ordinary people. Now that markets are waking up to the real risk of Brexit, they are ready to make these threats concrete.

On this view, a sudden run on the pound, rumblings of collapse in the housing market, and swingeing cuts in the value of people’s pension investments should be sufficient to tip the balance back in favour of EU membership. Remainers hark back to the well-trodden truism of Bill Clinton’s 1992 election campaign: it’s the economy, stupid. Such a complacent outlook overestimates the strength of the Remain campaign, because it underestimates the extent of the economic transformations that the UK has experienced over the last thirty years.

While it has never been true that everyone has an equal stake in national prosperity, the dramatic uncoupling of average living standards from GDP growth in recent decades has meant that calculating the interests of the median voter is much less straightforward than it used to be. For example, falls in house prices and interest rate increases only impact negatively upon those who are still paying off their mortgages: they do not threaten the country’s increasing pensioner population, nor would they worry young twenty- and thirty-something voters who can but dream of buying their own homes.

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Oscillations in stock prices are a similarly niche concern: many in the older generation have retired on generous defined benefit pension schemes, while their grandchildren struggle to accumulate any savings at all. If all that seems difficult to unpick, consider this: according to the Office for National Statistics, the least wealthy 50 per cent of British households own a mere nine per cent of total aggregate household wealth.

Let’s assume the costs of Brexit are distributed proportionately across the wealth spectrum: because the richest will lose most from falling investment returns, the migration of highly paid financial sector jobs to Paris or Frankfurt, and tax increases necessary to plug the fiscal gap.

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That would mean that the Treasury’s estimated £4,300 cost of Brexit per household per year falls to a still significant but less intimidating £774 per year average for the bottom half of the income distribution. In other words: it is not the economy, stupid, it’s the distribution. And the failure of successive governments to address the stagnation of living standards at the bottom end of the scale means that the status quo has far fewer advocates than a superficial examination of the figures would suggest.