In the corridors of Westminster and the salons of some remainers, there is a lot of excited chatter about the “Norway option”. This would involve being a member of the EEA and single market, but not of the EU. Depending on who is pushing, Norway is presented as either a temporary or permanent alternative to Theresa May’s troubled deal. But there are problems with this quick fix. The well discussed issue that being in the EEA doesn’t end freedom of movement is one; another is the fact that the Norway option doesn’t end EU budget contributions. But more fundamentally, few appreciate just how a regime that (sort of) suits Norway is completely unsuitable for the UK.
Norway (and I write as a half-Norwegian and regular visitor) is a remarkable economy but so different from the UK that it cannot serve as a role model. The two biggest sectors of the Norwegian economy are oil and fish, and both are outside the rules of the single market. The Norway option leaves Norway with full sovereignty over its major industrial sectors. Norway is a “rule taker” in production of goods and services, but this is a modest part of the economy. Outside fish and oil, Norway is mainly an importer, so it is little affected by being a rule taker.
In contrast, the UK would become a rule taker for its major economic sectors, from pharmaceuticals to car manufacturing. Take the most extreme example, and the one I know best: financial services. It is the UK’s biggest economic sector, biggest tax payer, and biggest export earner, but the UK government would lose almost all control over regulating it if we join the EEA. The UK would be handing over to its customers and competitors control over regulation of its main export industry, thus giving sovereignty to governments that could have a major incentive to set rules that are against our national interest. If the EU governments decide they want to reduce their massive trade deficit in financial services with the UK, they will have the power to do so, and there is little the UK could do about it.
It affects not just UK companies operating here, but those operating internationally. The UK would lose almost all control over the regulation of the major global companies to which it is the host government. Giants like HSBC, Prudential and Standard Chartered bank would have their rules set for them (wherever they operate in the world) by governments that do not have their interests at heart. This is not paranoia, as some Europhiles often suggest. You don’t just need to look at France’s repeated attempts to force the end of euro clearing in London, to get it to move to Paris. Take an example of where I was personally at the centre of the storm: the other EU27 governments decided to introduce a cap on bankers’ bonuses, overriding the UK’s objections, and doing it in a way that meant that 90 per cent of those affected were in the UK. These rules applied globally to organisations headquartered in the EU, and the companies affected were overwhelming British. The pay structures of Barclays in New York, and HSBC in Hong Kong, are being decided by EU governments despite the opposition of the UK – and this was while we had a seat around the table. Take that seat away, and who knows what will happen.
The Bank of England is also concerned about the impact on financial stability of the Norway option. We are a global financial centre, with financial assets many multiples of our GDP, and yet our rules for prudential stability for the financial system would be set by others without any input from the UK government or regulators. To say that is high risk is putting it mildly.
There are other reasons why Norway is happy to tolerate EEA membership, but which would be more painful for us. Norway is in the remarkable position of having a massive national budget surplus, which it has used to build up the world’s largest sovereign wealth fund. So having to hand over billions to Brussels for little in return doesn’t register on the political radar, as it does in the UK.
The Norway option might be sold as a temporary sticking plaster in our time of need, but there are often few things more permanent than those introduced temporarily (think of income tax and the London millennium wheel). Leaving the EU on the terms of the “Norway option” would certainly cause minimal disruption on the day that the UK left, but it would be a major longer term threat.
Anthony Browne is former chief executive of the British Bankers’ Association, and Europe Editor of the Times