Few of the battlegrounds in the Brexit debate convey such a natural advantage to one side as the issue of foreign direct investment (FDI). The British economy benefits enormously from FDI – in 2013 the inward stock of foreign investment was £977bn, about half of GDP, while 60% of non-EU businesses in the world’s top 250 have their European HQ in London. As Britain’s EU membership is almost universally regarded as a key reason for this, the ‘in’ campaign may as well be sitting behind crenallations and a moat.
But does it really follow that the hundreds of foreign businesses with major operations here would relocate to San Marino (or indeed Luxembourg...) the moment Britain says non to Brussels?
Akio Toyoda, the chief executive of Toyota, doesn’t seem to think so. Speaking in a joint Nikkei-FT report, he said a Brexit wouldn’t necessarily affect Toyota’s investment in its Burnaston assembly plant in Derbyshire.
‘In the sense that investment equals capacity, then various things come into it, like the size of the market,’ Toyoda said. ‘But there are other kinds of investment: in research, in development, in people. Some you can see and some you can’t, some take a long time to pay off, but when we have the strength I think it’s important for us to make those investments.’
It’s fairly unusual for foreign businesses to weigh in on the Brexit debate, other than to warn vaguely that they may have to ‘reconsider’ their position if it happens, as Deutsche Bank, Goldman Sachs and Nissan have done. Coming from one of the most significant investors in the UK, Toyoda’s words muddy the waters somewhat.
They also fit with the broad argument of the ‘out’ campaign on the FDI issue – that while access to the common market is important to foreign businesses, it is only one of several advantages the UK has over the rest of Europe, the others being the English language, common law, the City and (soon, they hope) a lighter regulatory burden. It’s no coincidence that Ireland, which shares many of these advantages, rakes in the huge levels of FDI it does.
A typical out campaign view is that Britain could copy Ireland and reduce its corporation tax, to counteract any wobbles among foreign investors over Britain’s access to the common market. Indeed, such access could be secured anyway through continued membership of the European free trade area, a la Switzerland or Norway.
That sounds fine on paper, which is of course the problem. A cloud of uncertainty surrounds what would happen if Britain left Europe. Would it really impede trade with the EU? Would the UK really be able to negotiate far better deals with non-European powers? Would some Nigel Farage figure really be able to cut clean through the Gordian knot of EU regulations that sit in the heart of British law?
As uncertainty is poison to investment, it’s hard to see a situation where there wouldn’t be at least a temporary (as in years, not decades) and substantial hit to FDI if Britain left, with longer term prospects being in doubt at best.
What isn’t in doubt is that, Toyota aside, most of those foreign investors who have spoken out have done so against Britain leaving. Talk of reconsidering investments here after a Brexit may be just that - a bluff to influence the vote, rather than a genuine statement of intent. Most firms probably don't know what they'd do, and would wait and see exactly how things played out before making big decisions. But given what's at stake it seems foolhardy not to take them at their word.