How Britain may leave the EU and end up with just as many immigrants

If the British people vote to leave, they will do so mainly because they want fewer immigrants from EU countries coming into the country. They also object to the loss of sovereignty that membership of the union entails, and to Britain’s payments into the EU budget. Yet if the Leave campaign wins on June 23rd, the British may have to accept free movement of labour with the rest of the EU, comparable budget payments and even less sovereignty than they enjoy today. This is because Parliament could impose the ‘Norwegian option’ on a post-Brexit government.

Norway, like Iceland and Liechtenstein, is part of the ‘European Economic Area’ (EEA). These countries don’t take part in the EU farm or fishing policies, but are in the single market. When the EU makes rules for the single market, these three are consulted. But they have no vote, since they lack representatives in the Commission, Council of Ministers or European Parliament. Norway has to accept free movement of labour (it hosts almost three times as many migrants as the UK, per capita) and pay into the EU budget (about 90 percent of what the UK pays, per capita). And Norway cannot – as Britain now can – veto a country that wishes to join the EU, though it must let in the workers of every new member.

Most of the serious economic institutes that have analysed the Brexit options have concluded that the EEA would be less damaging to the UK economy than the alternatives, such as a free trade agreement (the ‘Canada model’) or reliance on World Trade Organisation rules. It is the only model that would not be disastrous for the City: banks from EEA countries enjoy ‘passporting’ rights in the single market, meaning that they can be regulated in London and then do business across the EU without the need for regulatory approval from other countries. However, the EEA would still leave the City in a strange position: financial firms there would have to implement rules on which Britain had had no vote.

Suppose that the British decide for Brexit. About 70 per cent of MPs in the House of Commons favour Remain. That doesn’t mean that MPs would ignore the referendum result. But pro-EU Conservatives, Labour and the SNP might well force a government led by Michael Gove and Boris Johnson to seek the least damaging model for the British economy. The government would be under enormous pressure from big business and the City to choose the European Economic Area. The EU would be quite happy if the UK went for the EEA: the institutions are already in place, and the negotiations would be quicker and easier than those required by the alternatives.

Evidently, if the government bowed to the Commons’ desire for the EEA, there would be a massive row. A lot of people would have voted for Brexit in order to prevent EU immigration. But the question on the ballot paper is about EU membership and does not rule out the Norwegian model of non-membership. In any case, both Gove and Johnson are economic liberals. I have discussed with EU with both of them (occasionally in the case of Gove and more often in the case of Johnson) and reckon that in their hearts they do not oppose EU migration. Perhaps they would not shed too many tears if Parliament forced them to plump for the European Economic Area.

Charles Grant is director of the Centre for European Reform.