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Croissants & Crepes or Bubble & Squeak

23 June 2016 by Eoin Walsh

So the big day is upon us and whether you’ve listened intently to all the arguments or quickly tired of the shouting, finger pointing and “create a slogan and repeat” type debate format that the contest has descended into, you probably have to admit, this is a pivotal day for future generations.  It’s also a pivotal day for the markets, where a vote to leave could result in one of the most extraordinary trading days in market history.  Markets in London will likely be open early, with indices and derivatives trading opening at 5am and currency trading taking place through the night. We will be here!

We have no wish to try and influence anyone’s decision and instead thought we’d flick through the history pages and see what has happened since the UK joined the European Economic Community, as it was known back then, in January 1973.

This was to be the first of many enlargements, when, along with Ireland and Denmark, the UK joined what used to be the European Coal and Steel Community, set up in 1950 by Belgium, France, Germany, Italy, Luxembourg and the Netherlands, and took the Union to 9 states.  This was a far cry from the 28-state Union we have today, although, in true “European” fashion, it’s not that simple, because we also have the “Eurozone” within that, which is the monetary union of states that use the Euro currency – a union the UK refused to join.

The UK was taken into the Union by a Conservative government led by Edward Heath, although the public was granted a referendum on membership in 1975, by a Labor government led by Harold Wilson.  The vote was overwhelmingly in favor of the union, with a 67% “Yes” vote on a turnout of 65%.

In relation to the state of the economy, the UK had enjoyed a period of rapid GDP expansion, with quarter on quarter GDP growth peaking at almost 5% in Q1 1973; however, by 1974 the country was in a recession, which lasted until 1976.  Government spending to GDP at the time was 43.5%, remarkably similar to the 43.2% we have today, however, Public Net Debt to GDP was only 49.5%, compared to 84.5% today.  In addition, GDP (avg.) per head (according to Office for National Statistics) was £1,398 vs £28,132 in 2014, however if you adjust the 1973 number for inflation, it’s equivalent to £16,664 today.  The workforce was also in pretty good shape, with the country enjoying an unemployment rate of 3.9% vs 5.1% today.

In terms of population, the UK housed 56m in 1973 , while today its up at 65m and growing.

As regards tax, the basic rate in 1973 was 30% (on the first £5,000), rising to a top rate of 75% on earnings over £20,000, while today, the basic rate is 20% on earnings between £11,000-43,000, with a top rate of 45%, on earnings over £150,000 (although VAT is now higher and the ceiling of NIC has been removed for top-rate earners).

Anyway, onto more interesting topics, and with regards football, Brazil was the world cup holder, although West Germany would win the 1974 world cup, and are also the current holders, while they also won the 1972 European Championship, while Spain are the current holders.  Meanwhile, England, despite being one of the “favourites” for many tournaments and enjoying numerous “golden generations” have won precisely nothing.  Although, to avoid accusations of being bias, I should mentioned that neither has Wales, Scotland or Northern Ireland.

However, the UK can be cheered by the fact that they were the Eurovision song contest title holders at the start of 1973 and won the competition another 4 times since then, disappointingly though, the last win came in 1998.  To celebrate the win in 1972, the UK only had to pay 14p (£1.67 today, inflation adjusted) for a pint of beer, compared to anything from £4-6 in London today, while households enjoyed a pint of milk for only £0.06, (£0.72) vs £0.45 today.

In terms of investments, you could have done worse than buying Gold, with a troy Ounce costing approx. £34 (£405.30 inflation adjusted), compared to £857 today, an increase of approx. 2,200% or 7.5% pa.  The FTSE All Share index was 218 at the start of 1973, compared to 3,454 today, an increase of approx. 1,500%, or 6.25% pa.  In addition, for those of you who have rented since joining the Union, according to the Nationwide house price index, the average house price has risen from £7,900 back then, to just shy of £200,000 today, an increase of 2,400%, or 7.75% pa.

Will any of this change your mind?  Probably (and hopefully) not.  The UK is a hugely different place to what it was in 1973, as indeed is the European Union, but one thing is certain, the vote today will have huge consequences for the next 40 or so years, as no doubt the last referendum in 1975 did.  No pressure then!

Lastly just a short note that tomorrow morning will be extremely busy for us, so please be patient if we are not responding to our usual host of calls and mails in the normal time frame. We will however endeavour to get back to everyone by the end of the day.

Eoin Walsh
Partner, Portfolio Management



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