EU Special: The Economy Newsnight


EU Special: The Economy

In-depth investigation and analysis of the stories behind the day's headlines with Evan Davis.


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The mirage of the market miracle. Better economic prospects inside

:00:09.:00:17.

Europe. Half a million jobs lost. The balance on jobs will be strongly

:00:18.:00:23.

positive. It is bad for our economy. The uncertainty and risk. A global

:00:24.:00:29.

trading nation. Permanently poorer if we left. They were wrong then and

:00:30.:00:35.

they are wrong now, and we have a great future ahead of us.

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It's a referendum special tonight, on the EU and our economy.

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Politicians on both sides will make their case,

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and we'll have expert commentary to help our panel of undecided

:00:48.:00:49.

We'll sketch out possible paths the economy could take if we leave.

:00:50.:01:00.

It's 2030 and the Queen is 104. The Chilcot report is due to be

:01:01.:01:07.

published any day now. And in the business news, plans to turn Canary

:01:08.:01:13.

Wharf into a banking theme park. It is empty offices right now, since

:01:14.:01:17.

the banks closed when we left of the EU.

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We'll ask if Britain could open itself up to more trade

:01:20.:01:21.

with the rest of the world, or whether it'll simply

:01:22.:01:24.

Welcome to our special programme on the EU and the British economy.

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Broadly speaking we're asking if leaving would bring economic

:01:37.:01:39.

Short answer: something in-between, but we'll be debating precisely

:01:40.:01:44.

what, with our experts and politicians on each

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We also have in the studio here our panel of undecided voters -

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Back then we were discussing sovereignty, and back then most

:01:57.:01:59.

of them said they thought the economy was more important.

:02:00.:02:02.

Nobody knows what the effect of Brexit would be on the economy.

:02:03.:02:06.

It's all speculation of a more or less informed kind.

:02:07.:02:11.

But today the Treasury gave us its view of the effects of leaving.

:02:12.:02:14.

It's inside the zone of sanity, it's not mad, it is defensible,

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but it is at the pessimistic end of expectations.

:02:21.:02:24.

By 2030, under any scenario, our national income is projected

:02:25.:02:26.

But the Treasury says we won't be as much better off,

:02:27.:02:34.

There is a huge range of uncertainty.

:02:35.:02:44.

Their best Brexit case is that we'll be 3.4 per cent worse off

:02:45.:02:47.

That is, our national income will be 3.4 per cent smaller.

:02:48.:02:51.

The worst case, we'll be 9.5 per cent worse off.

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Their central case has our national income about 6.2 per cent poorer

:02:59.:03:01.

It's not always helpful to put that into pounds and pence

:03:02.:03:05.

because all households are different, but the Treasury has

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chosen to turn percentages into pounds, giving a figure

:03:10.:03:11.

of thousands of pounds per household, lost each year

:03:12.:03:13.

Last week we introduced you to our audience. Let's get some initial

:03:14.:03:29.

feelings on our economy. A show of hands, how many of you trust to the

:03:30.:03:33.

Treasury to give us the best figures at their disposal, the right kind of

:03:34.:03:40.

data? And is up. OK. Who do you believe, do you know who you would

:03:41.:03:45.

believe or turn to for economic advice? I think the government has

:03:46.:03:51.

got a point in evaluating and giving information. However, I feel like

:03:52.:03:55.

there is a scare tactic and it worries me that you come out with

:03:56.:04:02.

the figures like this, that a household will lose ?3400 perhaps

:04:03.:04:11.

all the, ... -- her household. You can make up the figures, I think,

:04:12.:04:15.

because it is all an assumption. And that worries me. Who should I

:04:16.:04:24.

believe and what should I do? Does anyone have a different opinion?

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There is a fear factor about import duty. They say that it will become

:04:28.:04:34.

more difficult for us to export if we leave but really, I think we need

:04:35.:04:38.

to know the facts. Can we also put import levies on goods coming in?

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That is a question that will come up. Any other questions? Jenny? I am

:04:44.:04:51.

a first-time buyer, and my big is interest rates and what the effect

:04:52.:04:55.

will be. At the moment, I do not know who to trust on that and I need

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a voice to trust. Let's see if any of you get closer to making a

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decision by the end of the programme.

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We're live blogging the programme at bbc.co.uk/newsnight.

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There's lots of extra background, analysis, and fact checking

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Not to imply the experts are, that my team are not experts.

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Before we go to our other guests, lets first take a few minutes to not

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think about the precise numbers but the things that will be

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There are different scenarios, inevitably, but what underpins them?

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Britain, a big interesting economy on the edge of Europe, marked by two

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distinctive characteristics that shape our relationship with the

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continent. Services is our specialty, or at least London's.

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Britain is the world's second-biggest exporter of services.

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Much as banking but accountancy, law, all sorts of business activity.

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Secondly, global connections, particularly in manufacturing.

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Foreign companies invest, own and run more of our families than in

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most other large countries. Britain has a relatively globalised economy.

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Connected to the world through history and commerce. Britain, you

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might say, is something of a hub. It is attached to continental Europe,

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it is close to the United States. So how does this role that we have

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there on potential decisions to leave the EU? First thing, we're not

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going to leave Europe. France will still be 21 miles from Dover, but

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let's try to imagine what life will be like if we do leave. It's 2030.

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The Queen is 104. The Chilcot report is due to be published any day now.

:06:56.:07:01.

And in the business news, plans to turn Canary Wharf into a banking

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theme park. It is empty offices right now since the banks closed

:07:07.:07:11.

when we left the EU. A community devastated as unemployed bankers

:07:12.:07:14.

have been unable to find any other work. A square mile of the old city

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of London is where the remaining banks have retreated two. The EU

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never liked the city and got revenge on it when we left. They refused a

:07:24.:07:29.

trade deal in financial services. Meanwhile, manufacturing is

:07:30.:07:33.

struggling. The effect fell on some golf courses. Japanese businessman

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love to play on British greens, but there are not as many of them now as

:07:38.:07:42.

they invest less. Spain has picked up much of the direct investment in

:07:43.:07:47.

Britain used to attract. For economists who want to remain in the

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EU, those nightmare vignettes are far from impossible. Take the fate

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of the city of London, a fast service export. Access to the single

:07:58.:08:01.

market is really important for a lot of firms within the service sector,

:08:02.:08:05.

because it allows you to passport your services into other countries.

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For example, currently if you are a bank based in London, you have a

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client in Singapore who wants to do business in Portugal and you can do

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that from London. But you cannot do that if you are not part of the

:08:22.:08:28.

single market. And for example, Switzerland. Zurich is a big banking

:08:29.:08:32.

sector and Switzerland has lots of trade with the EU. But Swiss banks

:08:33.:08:38.

are not in the single market. If you think about the number of Swiss

:08:39.:08:42.

banks that are based in London, for example, one of the reasons that

:08:43.:08:46.

they are there other than the UK's deep capital market is that it

:08:47.:08:54.

grants them access to the EU, which they do not have from Switzerland,

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which is not that far away. And for manufacturing, the issue is the

:09:02.:09:04.

potential loss of foreign investment, deterred by possible

:09:05.:09:07.

hassles over Britain outside the single market. At the moment, the

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car industry, as with a lot of industries, is very integrated

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across Europe. You have quite complex supply chains which means

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that car manufacturers in one country are using parts from other

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countries within Europe. And what happens, on what will potentially

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happen if the UK were to leave the EU, is that those relationships

:09:33.:09:36.

start to break down, because they are harder to maintain and there are

:09:37.:09:40.

worries as to whether or not the UK is complying with the right

:09:41.:09:44.

regulations. It makes organisation more costly. Now don't have

:09:45.:09:49.

nightmares. That is the worst Brexit case that we could muster. It is

:09:50.:09:52.

possible to turn the argument upside down. To describe a best case.

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It is 2030. The Queen is 104. Excitement is mounting for the 14th

:10:04.:10:06.

in the series of Star Wars trilogy is. And in the business news,

:10:07.:10:12.

written's production of driverless cars has reached a new peak. Britain

:10:13.:10:16.

has been a European leader in the industry ever since the UK

:10:17.:10:20.

established its helpful regulatory regime. The rest of Europe was

:10:21.:10:24.

slowing to the market, debating regulation incessantly. French taxi

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drivers protested against the technology. Meanwhile, the new

:10:31.:10:33.

banking district in Birmingham is ready to open, with a services

:10:34.:10:39.

sector expanding, and Canary Wharf spilling out further to the north of

:10:40.:10:43.

England. That is the more optimistic take, but can we justify it? One

:10:44.:10:48.

argument is about our ability to shape our own decisions on things

:10:49.:10:55.

like driverless cars, to do so to promote business and trade. I think

:10:56.:10:59.

it is absolutely credible that if there is Brexit, the government

:11:00.:11:02.

could move quicker than the European union does at the moment, where you

:11:03.:11:07.

have to keep 28 countries on side and there are all sorts of

:11:08.:11:09.

individual country interests, and you have to go through all the

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negotiations in Brussels itself, which can be irksome. I think

:11:15.:11:17.

Britain would be more nimble. When you think about a fast changing

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21st-century economy, the nimble will inherit the earth. Fortune

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favours the flexible. And we would be more flexible. And the danger to

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the city? To services, to our specialty? Personally, I do not

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believe that. I believe that the investment banks like Deutsche bank,

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they are there not because they like the weather, they are there because

:11:43.:11:47.

they appreciate the cluster of talent that surrounds the financial

:11:48.:11:55.

services industry, including legal services and accountancy, unique to

:11:56.:11:58.

London. And you need a premier financial sector within the time

:11:59.:12:02.

zone of Europe, and none compares with London. And be clear, the

:12:03.:12:07.

Brexit side starts the debate with a ?10 billion advantage. We at least

:12:08.:12:12.

do not have to pay a net contribution each year to the EU.

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Nice money to have. There will be a boost on the public finances because

:12:18.:12:21.

at the moment our net contribution is about ?10 billion and that could

:12:22.:12:24.

be used for other public expenditure, or it could be used to

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cut the deficit. Now, what you want to know is which scenario, best case

:12:30.:12:34.

or a worst case, is more likely. But there is, I'm afraid, is one of

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those situations where you just have to decide which risk you are more

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comfortable taking. The hope with Brexit is that we get a better

:12:42.:12:45.

trading relationship with the rest of the world. The fear is that we

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damage the best trading relationship that we have got, which is the one

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with the EU. I have to say both the published economic analysis suggests

:12:57.:13:01.

that the effect of leaving would be negative but not catastrophic. The

:13:02.:13:10.

argument is mostly bingeing on trade and economic models suggest that

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free trade is a good thing. They also hinge on immigration.

:13:16.:13:19.

Economists tend to think that it boosts growth, so to get the best

:13:20.:13:23.

deal leaving the EU, ironically, we need to stay open to more people.

:13:24.:13:27.

The Treasury analysis shied away from assuming immigration would fall

:13:28.:13:32.

if we left. But one group, Oxford Economics, have looked at detail in

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nine overall scenarios, making different assumptions. Leaving the

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EU needn't necessarily be a massive economic disaster. Of all our

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scenarios that we modelled, there was a negative impact on the size of

:13:48.:13:53.

the EU if the UK economy leaves. It is about how we use the economic

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levers we get back from Brussels. The best case scenario is that we

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retain a trade deal with the EU but we broke new deals with the rest of

:14:02.:14:05.

the world. That would mean we maximise our trade and limit any

:14:06.:14:10.

impact of leaving. Conceivably, you could have a positive benefit from

:14:11.:14:13.

that. The problem with that is that those two things are, to a large

:14:14.:14:19.

degree, intentional. The more you are in the EU block, the harder it

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is to make deals outside. Leaving the EU is a big decision but do

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remember, remain on leave, the economy is expected to grow over the

:14:29.:14:32.

next few decades, and it is expected to trade and remain global. But

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which is the route that best exploits our national potential?

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Sorry it's all so "one hand, other hand".

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Economics is a bit that way at the best of times,

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and in this case there are many uncertainties about the out option,

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Let's talk risks first with Liz Truss, Secretary of State

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for Environment, Food and Rural Affairs, who supports

:14:53.:14:56.

remaining in the EU, and Daniel Hannan, who is a member

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of the European Parliament, but a well known eurosceptic,

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Can we agree on one thing? That it is not a catastrophe if we choose to

:15:02.:15:11.

leave, not an economic catastrophe? The paper we have launched is they

:15:12.:15:26.

begin -- is a rigorous analysis. We would see a 6% gap in GDP. We would

:15:27.:15:34.

see households across the UK worse off by ?4300 per year. I think that

:15:35.:15:38.

is bad economically. We are talking about real people's jobs, incomes,

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and lives. I know the league campaign has said it is a small

:15:44.:15:47.

price to pay, but I think it is far too much. -- leave. 6% is the

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difference between the economy in 2015, between George Osborne's

:15:57.:15:59.

forecast of what it would be, and what actually occurred. That was the

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error over five years in the forecast in the 2010 Budget. You

:16:06.:16:08.

saying that Parliament was a catastrophe? I am saying during the

:16:09.:16:15.

economic crash households lost ?3000. It is a serious amount of

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money. It isn't helpful... I think it is, because the reason we do

:16:24.:16:28.

it... The average household income is a disposable income. Correct. You

:16:29.:16:35.

are taking something which is a GDB income. That is unhelpful. If you

:16:36.:16:41.

share it over households, it is a share of the impact. -- GDP. It

:16:42.:16:48.

could be from services, a school place, from the NHS. It reflects our

:16:49.:16:55.

national wealth. National income, yes. As you said, all economists

:16:56.:17:01.

have said if we see reducing levels of trade we will see reducing

:17:02.:17:05.

income. That will hit people's pockets and wallets. There is

:17:06.:17:08.

virtually no economist who thinks there will not be an impact. In the

:17:09.:17:13.

document, which runs up to 200 pages... It is robust and rigorous.

:17:14.:17:21.

It is big. Have you modelled the potential upside of the kind we

:17:22.:17:26.

described in that scenario of driverless cars, being a more

:17:27.:17:30.

nimble, flexible economy, with the ability to make decisions where we

:17:31.:17:37.

will not be hamstrung by the EU? For example, the money we pay in... I

:17:38.:17:44.

don't think you have modelled that. That is one of the active

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ingredients the out campaign say will... There is all of this

:17:51.:17:56.

evidence that extra trade makes more, because you are exposing

:17:57.:17:59.

yourself to extra competition from around the world. It is increased by

:18:00.:18:03.

being more open, by being a full member. Is it not fair to say that

:18:04.:18:08.

you've left out some of the things the other side of the argument would

:18:09.:18:13.

say are the active ingredient? The reason you want to leave is to do

:18:14.:18:18.

stuff. You haven't even modelled you argument. It is all about your

:18:19.:18:22.

assumptions. There are lots of spurious claims. On regulation, the

:18:23.:18:28.

fact is we share a lot of regulation across the youth. That helps us

:18:29.:18:32.

trade across the wider market. For example, if you are a food producer

:18:33.:18:36.

you have to slap a single label on your bottle and you can sell your

:18:37.:18:41.

goods in Spain, Germany. -- across the EU. If you are exporting to

:18:42.:18:46.

China or the US you have to create a different system. The shared

:18:47.:18:49.

regulations help us trade and help our companies innovate and grow our

:18:50.:18:57.

national wealth. Central estimate does not model ordered the effects I

:18:58.:19:01.

know you would like to be modelled. The 6% between leaving and not. What

:19:02.:19:06.

is your central estimate? We will be substantially better off. She didn't

:19:07.:19:11.

answer your question, do you think it will be a catastrophe. Ministers

:19:12.:19:16.

know it won't be a disaster. As recent as two months ago they were

:19:17.:19:19.

threatening to walk out over a trivial thing. 6%. It isn't a

:19:20.:19:31.

catastrophe. I don't want to get debated this 6%. Where are your

:19:32.:19:37.

figures published? Then we can scrutinise. Where is it? You know it

:19:38.:19:42.

is ridiculous to put figures on these things. The Treasury's figures

:19:43.:19:47.

are regularly wrong. It is impossible to model that far ahead.

:19:48.:19:51.

To look forward to 2030. Who knows if we will have driverless cars,

:19:52.:19:59.

massive breakthroughs in biotech... You suggesting there is no

:20:00.:20:02.

intelligent analysis -- are you suggesting. You can make some

:20:03.:20:10.

guesses. They have done it and put it in their model. How can you

:20:11.:20:15.

criticise? I will tell you why. I have known George Osborne for 20

:20:16.:20:18.

years. He has always been a strong supporter of the European project.

:20:19.:20:22.

For many years he was a supporter of the euro. I'm not blaming him. I

:20:23.:20:27.

think it is admirably consistent of him. But the idea that this is some

:20:28.:20:33.

disinterested analysis. This is straightforward propaganda. It is

:20:34.:20:36.

results driven. It began with what was a potentially scary figure. They

:20:37.:20:41.

then changed the variables. We don't want it to get to that figure. Not

:20:42.:20:46.

one hand went up when they were asked... We look forward to hearing

:20:47.:20:52.

your assumptions and your figures. A prominent supporter of the league

:20:53.:21:01.

campaign, putting a lot into it. -- leave. He thought ?4300 per

:21:02.:21:06.

household loss is a bargain basement price to pay for restoring security.

:21:07.:21:14.

I don't agree with that. If I did not think we would be better off

:21:15.:21:17.

financially, I wouldn't be sitting here making this case. For me, the

:21:18.:21:25.

central fact is every continent is growing except Antarctica and

:21:26.:21:29.

Europe. Britain is a global country. We are linked by history, our

:21:30.:21:36.

language, our law, to more distant places. We need to reorient away

:21:37.:21:41.

from a declining, tired euro zone towards the bits of the world which

:21:42.:21:47.

are prosperous. Do you acknowledge that there are risks in leaving?

:21:48.:21:51.

There are risks in staying and leaving. A percentage that you could

:21:52.:21:58.

be wrong. Of course. There are risks in whatever we do. I would rather

:21:59.:22:03.

face those risks in command of our own destiny, able to decide our own

:22:04.:22:08.

policies, to chart our own course, so we can mitigate those risks

:22:09.:22:11.

ourselves rather than handing power to people who may not have our best

:22:12.:22:16.

interests at heart. We have our panel of voters here. Anybody on the

:22:17.:22:22.

panel who would be willing to accept an economic loss in order to get our

:22:23.:22:26.

sovereignty or our independence or our borders back? You would? I would

:22:27.:22:32.

because it would be a short-term economic loss. I hear what is being

:22:33.:22:39.

set. If we were in charge of our destiny, and I believe in the people

:22:40.:22:42.

of the UK that we would take the short-term loss and turn it into a

:22:43.:22:48.

positive in a short period of time. Nobody else would? Basically if we

:22:49.:22:51.

lose economically you don't want to leave, is that correct? Did you say

:22:52.:22:58.

you would? I think I would. I am prepared for that if we get our

:22:59.:23:04.

sovereignty back. Why not? And a long-term loss not. We don't know if

:23:05.:23:10.

it would be long-term. Let me introduce you to the panel.

:23:11.:23:14.

On the leave side we have Gerard Lyons, economic

:23:15.:23:16.

adviser to the mayor of London Boris Johnson

:23:17.:23:18.

and Fazana Baduel, who set up and runs a PR company,

:23:19.:23:21.

and on the remain side Juergen Maier, the UK chief

:23:22.:23:23.

executive of Siemens, and investment fund manager,

:23:24.:23:25.

One of the key things we were talking about in the video was

:23:26.:23:45.

foreign direct investment. Particularly engineering,

:23:46.:23:48.

electronics, any of the things your company might have been involved

:23:49.:23:51.

with. What do you think the effect of leaving the EU would be on that

:23:52.:23:57.

investment? We are a significant investor in the UK. We have been for

:23:58.:24:02.

many years. Just going back to the discussion you were having here, you

:24:03.:24:07.

know, I do not see such a thing as a short-term effect on the Brexit.

:24:08.:24:13.

Because what would happen is we would go into at least a two-year

:24:14.:24:20.

period of the glaciations. Actually there is nowhere in the world where

:24:21.:24:24.

there has been a new trade deal done within two years. I think it would

:24:25.:24:30.

be longer. But what is key is that in that two-year period companies

:24:31.:24:36.

like Siemens and many others are making decisions as to whether we

:24:37.:24:40.

are investing here in new factories, in new research and development,

:24:41.:24:44.

technology, and that will actually have an impact on the jobs we are

:24:45.:24:49.

creating ten years down the line. 15 years down the line. Whatever

:24:50.:24:53.

happens this is going to have a long return effect. That is a two-year

:24:54.:24:58.

pause which has a long-term effect. Short-term disruption has a

:24:59.:25:02.

long-term effect. But what about the long-term? What about in ten years,

:25:03.:25:06.

do you think, if Britain gets reasonable relations with Europe,

:25:07.:25:16.

will Siemens look at Britain and think of it differently compared

:25:17.:25:22.

with, for example, Spain. Let's look at your example of driverless cars.

:25:23.:25:26.

One of the reason why Britain could not on its own create a market for

:25:27.:25:32.

driverless cars is because you have to build those cars. And the

:25:33.:25:37.

technology around it. The European standards. Ultimately they will

:25:38.:25:42.

become global standards. What I am saying is if we define cars here,

:25:43.:25:47.

just for Britain, you would have to drive it to Dover and leave it there

:25:48.:25:50.

because it will not work in France. -- design cars. You have just

:25:51.:25:57.

described the argument for remaining. But Europe has the

:25:58.:26:01.

significant influence on those global standards. And actually we

:26:02.:26:06.

significantly underestimate the positive influence we, as Britain

:26:07.:26:09.

have come on European and global standards. -- as Britain have, on

:26:10.:26:17.

European and global standards. There is this idea we will be victims of

:26:18.:26:22.

trade regulations and Harris. There is not one state which is not part

:26:23.:26:32.

of a trade regulation. -- and tariffs. There is a European free

:26:33.:26:38.

trade area. The only country not in it is Belarus. We would not be

:26:39.:26:45.

walking away from that comment... But it is a single market, though.

:26:46.:26:51.

You are mixing things up. We are in a single market which offers huge

:26:52.:26:55.

advantages to a company like Siemens. To build companies from

:26:56.:26:59.

here, have influence from here, into the EU. But how do you answer that?

:27:00.:27:05.

Getting a free trade deal will leave compliance burdens. How do you get

:27:06.:27:13.

over that? It is really important to get this point about the transition.

:27:14.:27:18.

The day after we leave, and it could be a few years after the vote, but

:27:19.:27:23.

the day after we leave all above existing standards are in place. --

:27:24.:27:30.

all our existing. All of our acceptance of EU technical standards

:27:31.:27:34.

are in place. That will be the case until one side or the other changes.

:27:35.:27:38.

There will be a gradual divergences. As Lord roads correctly said at the

:27:39.:27:45.

launch, it will be years before we notice any change, and it will be a

:27:46.:27:51.

gentle process. -- Lord Rhodes. It will not be a sudden change, Brexit.

:27:52.:28:02.

Quick comment. We are able to export over 60% of our cars. We can do it

:28:03.:28:06.

easily in Europe because we share standards. If we start diverging we

:28:07.:28:10.

will just be producing cars for a domestic market which is smaller. It

:28:11.:28:14.

makes much more sense to have a common European standard on things

:28:15.:28:18.

like that so we can export more of our products. One good way of

:28:19.:28:24.

framing the argument is to think about what we stand to lose from

:28:25.:28:33.

leaving, mainly the trade deal, we have with the EU.

:28:34.:28:35.

And what we stand to gain from leaving, in the trade deals

:28:36.:28:38.

we might be able to sign with the rest of the world.

:28:39.:28:41.

The Leave side argue we will lose very little if we leave,

:28:42.:28:43.

because we'll have a great trade deal with the EU.

:28:44.:28:46.

What kind of deal might we get from the European Union? Here is the

:28:47.:28:52.

starting position for the former Swedish Prime Minister. Do you think

:28:53.:28:56.

it is possible we would have full access to the single market without

:28:57.:29:03.

free movement of people? No. The given wisdom is that fewer EU rules

:29:04.:29:07.

we sign up to the worse our access to EU markets will be. So how strong

:29:08.:29:12.

is our negotiating position in terms of trade to change that? We sell to

:29:13.:29:18.

hunt and ?23 billion of goods and services to the EU. That is 12% of

:29:19.:29:23.

our economic activity. We also buy a slightly larger amount from the EU.

:29:24.:29:29.

Our imports are ?291 billion. In terms of the European Supply chain,

:29:30.:29:33.

we are pretty important. A trade partner to the EU of similar scale

:29:34.:29:38.

to America, say. Some Brexit folk think because we buy so much more

:29:39.:29:41.

from the EU then we sell to it, other countries will be keen to cut

:29:42.:29:47.

deals. EU exports to the UK represent about 3% of economic

:29:48.:29:54.

output. Still, remember, the EU would have 27 nations, each with

:29:55.:29:58.

their own agendas. Ireland's exports to Britain are worth between eight

:29:59.:30:05.

to 10% of their annual economic activity. The EU tends to give

:30:06.:30:10.

countries more say on things which affect them disproportionately. The

:30:11.:30:13.

Netherlands, France, Germany, they all do trade with us. For Italy we

:30:14.:30:20.

are not a big partner. Exports to us make just 1.5% of their economic

:30:21.:30:23.

output. Other political factors might be bigger for them. Some of

:30:24.:30:28.

our trading partners might get annoyed at the UK were offered

:30:29.:30:32.

better trading terms than they have. Might Spain want to make sure live

:30:33.:30:37.

outside the EU is grim as part of its strategy to keep a lid on its

:30:38.:30:42.

would-be breakaway regions? The trading instincts of Brussels might

:30:43.:30:50.

mean that they make things tougher. At this stage, we just don't know.

:30:51.:30:57.

We have looked at the trade deal with the EU.

:30:58.:31:07.

Gerard, we will get a deal with the EU, correct? Yes. First and

:31:08.:31:15.

foremost, you do not need to have a trade deal to trade. You can go into

:31:16.:31:19.

any shop in the UK and pick up an item that says made in China. Most

:31:20.:31:23.

people will be confused to discover we do not have a trade deal with

:31:24.:31:29.

China. You do not need that. If we decide to leave, the first two

:31:30.:31:34.

years, nothing changes. Then we can decide to trade on the world trade

:31:35.:31:38.

organisation books. But the organisation focused on

:31:39.:31:44.

manufacturing. The UK economy is a service economy. If you look at the

:31:45.:31:50.

European Union, Open Europe, an independent organisation, believes

:31:51.:31:53.

that three quarters of the European economy is services but only a

:31:54.:31:57.

quarter of the trade is services. The rest of Europe does not like to

:31:58.:32:01.

trade in services. The good thing is because we are so competitive, at

:32:02.:32:05.

the end of the day we will be able to trade. And the financial sector

:32:06.:32:10.

will do particularly well. Do you believe that the financial sector,

:32:11.:32:13.

is not a possibility that the EU will say, we never really liked your

:32:14.:32:17.

banks, and we will not give you a trade deal? 17 years ago, we had a

:32:18.:32:21.

big debate as to whether Britain should get rid of the pound and join

:32:22.:32:26.

the euro. Then it was feared that London would lose out. I understand

:32:27.:32:30.

that, but why give us a deal and not Switzerland? The reality is that

:32:31.:32:37.

then the competition was with Amsterdam, Frankfurt and Paris. Now

:32:38.:32:40.

the competition to London is New York, Singapore and Hong Kong. The

:32:41.:32:44.

reality is that globally, Finance has congregated in a few centres. I

:32:45.:32:49.

want to pin you down on one specific question. A London-based bank with

:32:50.:32:53.

the customer in Singapore who wants to transact something in Portugal,

:32:54.:32:56.

this is not a ludicrously fanciful idea. Would they be able to do that

:32:57.:33:02.

if we left the EU and did not have a deal on financial services? Would a

:33:03.:33:07.

London bank be able to serve a Singapore customer in Portugal? Yes.

:33:08.:33:16.

No, they wouldn't. Technically,... But they wouldn't be able to do it

:33:17.:33:22.

without a deal, would they? There are two things, retail and

:33:23.:33:25.

wholesale. Retail is segregated and you were right about wholesale

:33:26.:33:28.

banking. But we need to take the lesson from New York. People look at

:33:29.:33:35.

New York and North America. America ensures that people need to have a

:33:36.:33:38.

New York presence or New York qualification. You are technically

:33:39.:33:41.

right but there is no reason to think that anywhere else in Europe

:33:42.:33:46.

would be able to do it. If they were tough, as you suggest, then we can

:33:47.:33:49.

learn from the Americans and be quite tough ourselves. Finance

:33:50.:33:55.

congregates in a few centres. Nicola, you have been congregating

:33:56.:34:07.

financially for many years, and you are a Remainer. I do quite confident

:34:08.:34:13.

in what will happen when we leave? It is quite clear to us that... If

:34:14.:34:20.

you look across all industries, 75% of the word investment comes to the

:34:21.:34:25.

UK because we are in the EU. If you ask the companies investing, they

:34:26.:34:29.

will say that is the reason. The same is true in financial services.

:34:30.:34:34.

If we leave the EU, it will cause mayhem for major financial

:34:35.:34:37.

institutions. They will have to move to Frankfurt or Paris. Unless we do

:34:38.:34:42.

get a deal? Gerard says that we might get a deal. Well, the Swiss

:34:43.:34:48.

could not, so why would we? Look at her London is positioned. We are

:34:49.:34:52.

positioned well in the new growth markets. Chinese currency comes to

:34:53.:34:57.

London, Islamic growth markets, the biggest foreign exchange trading

:34:58.:35:01.

room. People trade dollars in London. If it is all going so well,

:35:02.:35:05.

why stop it and move onto something else? That is what I do not get

:35:06.:35:10.

about this film. It seems to me that there is fantastic innovation going

:35:11.:35:16.

on in the city. Why risk it? It is not a risk. The last decade has

:35:17.:35:22.

shown that globalisation, technical change and innovation are moving in

:35:23.:35:26.

one direction. Countries that do well are adaptable and flexible and

:35:27.:35:31.

control their own destiny. As we do. The European Union is going in the

:35:32.:35:36.

opposite direction, controlling, regulating and centralising. Global

:35:37.:35:39.

finance needs to break free from that. One important point is that

:35:40.:35:43.

the single market is not complete. One of the major aspects of it that

:35:44.:35:48.

is not complete his services. 78% of our economy is dependent on services

:35:49.:35:52.

and we have the most to gain if we stay in. There is a major benefit

:35:53.:35:57.

that we will accrue if we manage to stay in. The irony here is that the

:35:58.:36:00.

single market is not complete and that does not prove whether we

:36:01.:36:05.

should stay in and finish it on leave. Everyone else has incomplete

:36:06.:36:11.

access. It is an incomplete market. When you say why change, there was

:36:12.:36:14.

an interesting phrase that you have used twice, once in the film and

:36:15.:36:20.

once in the studio, which is that Brussels does not like the city very

:36:21.:36:23.

much. Everyone recognises that. We had been on the receiving end of

:36:24.:36:31.

malicious regulation. Short selling bands, the financial transactions

:36:32.:36:34.

act. It would be even worse if we were outside. But would it be better

:36:35.:36:41.

if we leave or will it be better if we stay? It makes sense to take back

:36:42.:36:44.

control of our own regulation and have it in the hands of people who

:36:45.:36:48.

do not start with a proposition that a capitalist system is wrong. The

:36:49.:36:51.

idea that Germany and France are going to give us a better deal than

:36:52.:36:55.

they have got, they are going to give us full access to the single

:36:56.:36:59.

market, from which we benefit hugely, I can mention an area like

:37:00.:37:03.

agriculture, countries like Norway and Canada do not have full access

:37:04.:37:08.

to agriculture trade. The point is that the single market does not work

:37:09.:37:14.

in services. But they do not have full access to their financial

:37:15.:37:17.

services passport either, Canada does not. The government produced a

:37:18.:37:21.

report on the financial sector, a competency report, which pointed out

:37:22.:37:25.

that in the last decade the UK has lost the ability to control

:37:26.:37:29.

regulation and finance. The good thing, it said, was that in the

:37:30.:37:32.

future regulation is set at a global level and that is the point that

:37:33.:37:36.

Daniel is making. Many of these key areas, important for the UK

:37:37.:37:39.

financial services, it is globalisation that is the key for

:37:40.:37:43.

the future. The question is, do we want to build on the successes of

:37:44.:37:48.

the single market, why the net, expand it through new trade

:37:49.:37:51.

agreements like TTIP, with a free trade agreement with China, or do we

:37:52.:37:59.

want to spend ten years renegotiating a worse deal? But

:38:00.:38:03.

financial services... Lets leave it there. You have got a flavour of

:38:04.:38:07.

that argument but many who want to leave hope for a better deal with

:38:08.:38:09.

the rest of the world. More trade and all that

:38:10.:38:10.

flows from it. The question is whether the world

:38:11.:38:12.

will want to deal with us. So what kind of deal might a post

:38:13.:38:21.

Brexit Britain get from the rest of the world? The key argument has been

:38:22.:38:26.

that the EU tangles are in the regulation and makes it hard to win

:38:27.:38:30.

business in a faster growing market. If we could get rid of that

:38:31.:38:35.

entanglement, perhaps we could gain outside Europe. The world has lower

:38:36.:38:39.

tariffs than when we joined the EU but believed campaigners say they

:38:40.:38:42.

want to go for trade deals with the rest of the world as well and they

:38:43.:38:46.

argue that ours could be bespoke. Tailored just to us. EU trade deals

:38:47.:38:50.

with the rest of the world have to fit in all 28 states. The EU's

:38:51.:38:55.

advantage is leverage. Britain is a market of 65 million people but the

:38:56.:38:59.

EU is more powerful because it has half a billion. And, remember, we

:39:00.:39:04.

will have to learn how to do trade deals again. It might take a while.

:39:05.:39:09.

The EU Singapore deal took seven years, the Canada deal, five years.

:39:10.:39:14.

Since we already meet EU standards, we could conclude them faster,

:39:15.:39:19.

perhaps, but what if post Brexit Britain breaks from these laws?

:39:20.:39:23.

Switzerland's deal with China includes some financial linkups and

:39:24.:39:26.

took five years. And previous attempts to cut a deal with the US

:39:27.:39:30.

failed. The US government say they want us to stay in Europe, so how do

:39:31.:39:35.

the leaders -- as do the leaders of China and India. They also prefer to

:39:36.:39:40.

deal multilaterally, with blocks of countries rather than one at a time.

:39:41.:39:43.

It also might be impossible to wrestle a deal out of all of them. A

:39:44.:39:48.

US deal might involve taking genetically modified produce. To cut

:39:49.:39:51.

a deal with the EU, we would probably need to restrict it. The

:39:52.:39:55.

choice of which deal to choose would be hours and ours alone to make.

:39:56.:40:03.

Fazana Baduel, you are a business woman, and you have opened offices

:40:04.:40:11.

in other countries outside of Europe. You would like to open in

:40:12.:40:17.

India, or have you managed to open in India? I am in the process of. It

:40:18.:40:22.

would be easier if we had a bilateral trade agreement with

:40:23.:40:26.

India. I believe the EU has been negotiating for nine years, and for

:40:27.:40:31.

China? They are not even talking. And what makes you think, for the

:40:32.:40:38.

audience to get an idea of what a trade deal is, what would a British

:40:39.:40:41.

trade deal with India have in it that would help you? What is the

:40:42.:40:46.

line going to say? Lower tariffs, for instance. There are tariffs on

:40:47.:40:54.

public relations industries? There are on goods and services. I opened

:40:55.:40:58.

up by business six years ago in the UK. My business came from emerging

:40:59.:41:03.

markets. I did not seek out business from emerging markets, I found out

:41:04.:41:06.

that the growth is outside of Europe. Europe is a stagnant

:41:07.:41:11.

economy. I do not understand why we, our taxpayers income is going to

:41:12.:41:18.

spend ?300 million a week, giving to the EU. Just on this specific thing

:41:19.:41:23.

of the trade deal with India, does your business face a tariffs in

:41:24.:41:26.

India, doesn't face other restrictions and operations? We face

:41:27.:41:36.

other restrictions. I want to really have a granular example of something

:41:37.:41:38.

you want the British government to negotiate and I want to find out why

:41:39.:41:43.

the Europeans are not negotiating that. I would love for the UK to

:41:44.:41:47.

have a specific bilateral trade agreements so that both countries

:41:48.:41:52.

would work together. What would be in the? Nahrendra Modi came to the

:41:53.:41:58.

EU and he said he would like the UK and India to come together to work

:41:59.:42:05.

on -- the EU and India to come together to work on Smart cities.

:42:06.:42:09.

Fundamentally, if we have to go via the EU for a larger trade

:42:10.:42:13.

relationship, it is going to never happen. It has been so many years

:42:14.:42:16.

and we have not actually got anything. Liz Truss, it is true, we

:42:17.:42:21.

have never tried a British negotiation with India. It might be

:42:22.:42:26.

easier than negotiating with 28 countries and India. I have

:42:27.:42:29.

considerable direct negotiations with China and the US. On getting

:42:30.:42:34.

our agricultural products into those markets. For example, although the

:42:35.:42:42.

EU is able to sell beef to the US, we cannot as a UK government,

:42:43.:42:47.

because of the BSE issue is that we have had. There are nontariff

:42:48.:42:53.

barriers to getting into the US. It has taken us 20 years of

:42:54.:42:58.

negotiations. I hope to make progress this week. Likewise with

:42:59.:43:03.

China, there are products we cannot negotiate to China, like glamour,

:43:04.:43:05.

because of bilateral discussions. These deals with other countries

:43:06.:43:11.

take years and years and years. If you look at the length of time the

:43:12.:43:19.

Canada trade deal took, 27 years... It took seven years. On our own we

:43:20.:43:23.

would have done a bilateral trade deal right away. We have a bilateral

:43:24.:43:28.

relationship with the US about getting meat products in. It has

:43:29.:43:32.

taken 20 years. None of these things are easy. The idea that we could

:43:33.:43:36.

wave a magic wand and get an instant trade deal... It must be easier when

:43:37.:43:40.

you do not have to worry about French film makers and Italian

:43:41.:43:48.

textile deals. I think the central point here is what was just said

:43:49.:43:54.

about where the growth is. I agree. I do not disagree at all. Our

:43:55.:43:59.

exports have fallen by 55% in the last ten years. Where will they be

:44:00.:44:04.

in 20 years? Hello does it have to go before we drop this bizarre idea

:44:05.:44:09.

that we need to merge our political institutions? That has nothing to do

:44:10.:44:12.

with that. The fact is that EU companies like Germany exported more

:44:13.:44:18.

than we do. It is not the EU holding us back it is that we need to make

:44:19.:44:22.

more effort on exporting, which is what we're doing this is not about

:44:23.:44:28.

restrictions from Europe. This is about our own ability to export,

:44:29.:44:31.

which is important and I think those markets are important. We making

:44:32.:44:37.

this sound like the EU has not negotiated other trade deals. There

:44:38.:44:42.

are 53 trade deals that the EU has negotiated with other countries. And

:44:43.:44:47.

I think it is somewhat naive to think that we are suddenly, within a

:44:48.:44:52.

three-year period, going to negotiate all of these great trade

:44:53.:44:56.

deals and ignore the biggest trade that we do with our local area. The

:44:57.:45:02.

EU's total trade deals are $7.7 trillion. Chile's are $54.3

:45:03.:45:11.

trillion. Singapore, South Korea and Chile have bigger trade deals than

:45:12.:45:15.

the EU. Countries that are able to set trade deals to suit their own

:45:16.:45:19.

interests to do well. Britain is one of 28, we are at the back of the

:45:20.:45:24.

queue of the EU is focused on manufacturing. Services does not

:45:25.:45:27.

figure prominently. Weight at the moment the EU is

:45:28.:45:39.

negotiating with the US, which is controversial, and many people do

:45:40.:45:44.

not want it. With the US, if we left, would they rather now

:45:45.:45:48.

negotiate with Britain? They have said they wouldn't. Would they

:45:49.:45:54.

rather say, frankly, we don't have time for you individually, can we

:45:55.:45:58.

deal with you as a block? The answer is, look at the Major of our

:45:59.:46:03.

economy, our instincts and inclinations. Japan doesn't have a

:46:04.:46:07.

deal with the US. The constraints of a trade deal are the interests, or

:46:08.:46:12.

protectionist interests come of one or another party. You can see this

:46:13.:46:20.

in certain industries, including textiles. We are a much more

:46:21.:46:25.

maritime economy, in that sense we can speak to non-EU economies who

:46:26.:46:30.

have successfully negotiated trade agreement around the world because

:46:31.:46:34.

they don't have to worry about French film-makers, or Polish farm

:46:35.:46:37.

workers, or whatever it is. And that allows them to get a much more

:46:38.:46:42.

liberal and productive deal. How hopeful argue that an EU deal will

:46:43.:46:46.

occur with India and then your business will be opened up?

:46:47.:46:51.

Logically, if the UK negotiates with India it would be in the interests

:46:52.:46:57.

of the UK. Not one of a number of different countries. I also think it

:46:58.:47:01.

is a defeatist mentality that if we look we cannot compete on a global

:47:02.:47:04.

stage without clinging onto the petticoat of a stagnant economy, the

:47:05.:47:14.

EU. It isn't. It is. I did not choose to do business outside of

:47:15.:47:17.

Europe, I was forced because that is where the economic growth is, in

:47:18.:47:23.

India, in Russia, in China. Europe isn't the future. It is better to

:47:24.:47:29.

have a fantastic base of a 500 million person market for your

:47:30.:47:34.

product. We are running out of time. And I do want to finish. I want the

:47:35.:47:39.

audience to have a last word. We have discussed trade deals with the

:47:40.:47:46.

U, the rest of the world, which are perhaps three of the biggest

:47:47.:47:55.

arguments. -- with the EU, with the rest of the world. Anything that

:47:56.:48:02.

makes you excited or fearful? We shouldn't be defeatist. We should be

:48:03.:48:06.

positive. We should get over the complex issues we are talking about.

:48:07.:48:11.

If we do that we can do it together. One way to look at it is to say if

:48:12.:48:16.

you are cautious, you hang on to what you have got. If you are more

:48:17.:48:20.

daring you perhaps think maybe we can do better as this side have

:48:21.:48:27.

argued. How many of you at the moment would think economically we

:48:28.:48:32.

should be a bit cautious? How many of you are feeling daring?

:48:33.:48:39.

Absolutely, we should have more faith in ourselves. Holly, you were

:48:40.:48:46.

saying this earlier... Yeah, we should be daring. Why don't we have

:48:47.:48:49.

the skills to set up these trade agreements? Why can't we do it? The

:48:50.:48:55.

fifth largest economy in the world. One of the members of the Security

:48:56.:48:59.

Council. The Commonwealth, Nato, how much bigger do we have to be before

:49:00.:49:04.

we can run our own affairs? We do, but we work with other countries to

:49:05.:49:07.

do better. That is what we are talking about. The bureaucrats of

:49:08.:49:14.

the you run it. Bottom line is we want to do both. We don't want to

:49:15.:49:21.

carry on trading. And through the EU we can create the better trade

:49:22.:49:27.

deals. But why do we have to pay... Gentlemen, ladies, we have to leave

:49:28.:49:31.

Our live blog page will still be live for another 40 minutes or so.

:49:32.:49:36.

Take a look at that at bbc.co.uk/Newsnight.

:49:37.:49:38.

A lot of people do argue they want facts in this

:49:39.:49:41.

debate, but be clear - it is not facts we need:

:49:42.:49:43.

We need to know the unobservable answer to the question,

:49:44.:49:47.

what happens if we leave, or if we don't?

:49:48.:49:52.

Which is why there's still an argument.

:49:53.:50:00.

I hope you found the discussion tonight helpful.

:50:01.:50:07.

Have a very good night. Thank you for watching.

:50:08.:50:09.

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