Britain’s EU Referendum: Misinformation, confusion, the betting, the odds and the outcome

13th June 2016 / United Kingdom

By Graham Vanbergen – Britain’s EU referendum vote is now just 10 days away and the various campaigns are at full speed, especially the ones that deliberately use extreme emotions to swing votes via the use of fear campaigning. This looks more like a state sponsored psychological warfare and propaganda campaign as it makes use of an age old theory of human motivation which you may have heard of before called “Maslow’s Hierarchy of Needs“.

The basis of Maslow’s theory is that we are driven by some elemental needs such as food, shelter, safety, self esteem and belonging and Project Fear is designed to make us fearful that we may lose some or all of those most primary needs. Hence, the threats of job losses, increasing mortgage rates, declining house prices, pension losses etc.

In the meantime, most of us that are going to vote do realise the very serious, game changing event that this really is. To that end it is worth remembering that campaign managers have been as keen to confuse us as convince us.

A new survey by Ipsos MORI reveals that the various campaigns have been successful in basically one thing, confusing many voters with misinformation, disinformation and blatant propaganda.

The survey published just at the end of last week entitled “Public misperceptions about the EU and how it affects life in the UK“confirms that the public is completely misguided about the European Union.

For instance the survey reveals “On average we think EU citizens make up 15% of the total UK population (which would be around 10.5m people), when in reality it’s 5%1 (around 3.5m people). Those who intend to vote to leave overestimate EU immigration more: they think 20% of the UK population are EU immigrants, compared with the average guess of 10% among those who intend to vote “remain”.”

It also reveals that at the same time we underestimate the proportion of all immigrants who were born in the EU. The average person guesses that a quarter (25%) of all immigrants were born in another EU member state, when the reality is 37%. This suggests that it’s immigration as a whole that we overestimate, rather than EU-specific immigration.

The majority of us (67%) correctly say the UK annually pays more into the EU’s budget than it gets back – but we overestimate how much we pay compared with other countries. 84% of us put Britain in the top 3 contributors to the EU’s c.€140bn annual budget (the same proportion that picks Germany as a top contributor) and nearly a quarter of us (23%) think the UK is the single top contributor to the EU. In reality, Germany paid in twice as much as us in 2014 (21% of total EU income), followed by France (16%) then Italy (12%), with the UK in fourth place (11%).

We massively overestimate the proportion of Child Benefit awards given to families in other European countries. The actual proportion of UK Child Benefit awards going on children living abroad in Europe is 0.3%, but 14% of us think that 30% of UK Child Benefit goes to children abroad and 23% of us think 13% does. This means that nearly 4 in 10 of us think the number of children in EU countries receiving Child Benefit from the UK is 40 to 100 times the actual level.

When it comes to democracy in the EU, we are even more confused. Only 6 in 10 know that members of the European Parliament (MEPs) are elected by the citizens of each member state. One in five (18%) think that MEPs are not elected and a quarter (25%) say they don’t know whether they are or not. Unsurprisingly then, just 5% can correctly name at least one of the MEPs representing their region. This is much lower than the number who can name their local MP (41%).

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We also underestimate how much actual investment into the UK comes from EU countries. The average guess is that they contribute 30% of total investment into the UK, when it actually makes up almost half  at 48%. This perception gap is mirrored by an overestimation of investment from China, which people think makes up 19% of inward investment but actually only accounts for 1%.

Interestingly, more than twice as many people think the UK will in fact vote to remain than those who believe Britain will exit the EU at 51%/23% respectively. Both the public and the Bookies think turnout will in the 60-65% range.

What is interesting about this survey is that depending on how you read it, almost all of the points highlighted are in the favour of the Leave campaign team.

On that note we have some statistics and comments from the banking industry. These guys are used to making huge bets, so it’s worth reading what they have to say even if most of the time we don’t believe a word they say. Zerohedge has collated some numbers from the markets and we have extracted the top three threats or observations from each category.

What is the likely outcome?

  1. Citigroup analysts said last week they are increasingly concerned on the polls and the implication for domestic political stability after the vote due to growing rancor within the Conservative Party.
  2. SEB says probably need a 10ppt lead in polls to be certain they’re predicting the outcome correctly; Standard Chartered would review downside call for the GBP, if poll of polls consistently showed more than a 13ppt lead for remain, analyst Eimear Daly writes.
  3. Estimated odds of Brexit by UBS WM, Citigroup, IHS, SocGen and Eurasia range from ~30% to 40%; Julius Baer cut the est. probability to 30% vs 30%-40%.
What happens if the remain camp wins?
  1. Even if the U.K. votes to remain in the EU, divisions resulting from the vote could lead to early elections, according to Morgan Stanley analysts – The bank’s economists say even if the “Remain” camp wins, slower growth and weaker inflation would push a BOE rate increase back to early 2017.
  2. Meanwhile, ING analysts say if the U.K. votes against Brexit, the BOE could lift rates as soon as Nov.; BNY Mellon analysts note GBP strength after the Scottish referendum faded just hours after the result.
  3. Julian Wolfson, co-head of research & political strategist at Odey Asset Management, says issues are likely to continue even if the U.K. votes to stay and Brexit risk could linger for GBP.

What happens on a Brexit result?

  1. BofAML economists say an exit would mean the U.K. would have to renegotiate deals with other regions in addition to Europe; populist backlash in the U.S. and elsewhere may make new agreements difficult
  2. Large current-account deficit is one of U.K.’s key economic vulnerabilities, CBA analysts write in note – Uncertainty after a “leave” vote could increase risk premia in GBP assets; investors would want higher rate of return to compensate for perceived risks or may simply reduce exposures.
  3. Capital Economics says ECB may need to take further action; such an outcome could cause financial-market volatility, potentially adverse effects on euro-area economy and financial sector.

For what its worth, I think there is a real prospect of an upset here. The possibilities of Brexit, bubbling from below, are much higher than the pollsters and pundits are predicting. If that is the case, I can’t see Cameron staying and if that happens, the Tories will likely infight all the way to Britain’s exit, whenever that may be, no matter who leads them. In the meantime, the new Labour party leader, by sitting on the Brexit fence, will no doubt have many of his own problems throughout the election cycle through to 2020. The real prospect in my view, irrespective of the result, is a constitutional and political crisis for at least a decade. The Tories could well have let a very nasty genie out of its bottle.

The result of what the financial industry is saying is that; it’s unlikely that the vote will be to leave the EU but whichever way the vote goes the political fallout could be just as damaging as either result. And that is a fair observation to make. After all, if the result causes an early election – Jeremy Corbyn will be pitted against who?

For me, there are only four real contenders here – Fox, Gove, Johnson and May. Fox has already tried, failed and was sacked for threatening national security with his mate. Gove is leading caustic Brexit battle cry and won’t be thanked for that and May, who I detest, has done nothing but hedge her bets on Brexit so far. Johnson would be a disaster as he has been throughout his political career. I suspect Gove or May will be final contenders if there is some sort of leadership challenge.

And then even more political uncertainty. Honestly, I think it’ll be a political nightmare whatever happens!

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