Gerard Lyons: London can win either way — in or out of Europe

If the Conservatives win the next general election they have pledged to hold an in-out referendum on British membership of the EU. Labour and the Lib-Dems may yet follow suit. London benefits from significant inward investment and is Europe’s financial and cultural capital. So a recurring question from business and investors has been: what does the Europe debate mean for London? Despite a positive view of London’s prospects there is often concern about the weakness of the eurozone economy and about what the future may hold if the UK were to leave the EU.

These are the issues addressed by tomorrow’s Europe Report, and Boris Johnson’s keynote speech in the City responding to it. The report, which I authored, analyses the economic and financial issues in the EU debate and what they mean for London.

This report needs to be seen in the context of a number of strategic reports that the Mayor has commissioned on important issues facing London. Last year saw the release of the Mayor’s 2020 Vision on London’s future and the London Finance Commission Report, which argued for greater financial autonomy for London and other core English cities. Then, last week, the Mayor released his draft consultation 2050 Infrastructure Plan. To this list is now added the Europe Report.

The trouble with much of the debate on Europe is that it gives the impression that the UK will succeed either only if it is in the EU — that is the yes campaign — or will prosper only if it leaves — that is the no campaign.

The reality is likely to be far more complex. Although staying or leaving is a vital decision, it is not the only thing that matters. Our analysis shows the outlook also depends on the policies adopted. If we stay in the EU, the key question is whether it will reform. For that to happen the UK will need to play a more engaged role. If we leave, the outlook will depend on the policies we adopt outside and also on the relationship we have with both Europe and the rest of the world.

The time frame over which business looks ahead can often be only a few years, which is relatively short in economic terms. In that business model there is a bias towards the status quo or avoiding unnecessary uncertainty.

Hence many in the City and big business were in favour of joining the euro years ago, as our European competitors were doing just that. To his credit, Chancellor Gordon Brown proposed five long-term economic tests that concluded the euro was not right for us.

Now, the bias among business is to remain in the EU, given the uncertainty and legal complexity of leaving. The question, though, is how the economies of the UK and Europe will perform over the long term, over a couple of decades.

As a result, this report has carried out detailed economic forecasts that look 20 years ahead. We worked with the economic consultancy Volterra to produce some long-term forecasts.

Let me share some of the economic numbers in tomorrow’s report to give a flavour of the debate. Currently, the size of the London economy is £350 billion a year, about a quarter of that of the UK. The Europe Report concludes that the best outlook for the UK and London over the next 20 years would be in a reformed EU.