The party — a populist anti-Europe, anti-immigration group — may not win a single seat, despite a surge last week in English local elections, in which it won nearly a quarter of the vote — running a close third to Labour and the Conservatives. That is how the mathematics of Britain’s voting system works.

Nevertheless, the rise of the party also known as UKIP could have profound consequences for British politics and business — in particular, for the British relationship with the European Union. This is because it is mainly taking votes away from Prime Minister David Cameron’s Conservatives. A calculation by Sky News suggested that, if the local election results were translated into a general election, Labour would win an overall majority. Even though UKIP might win no seats itself, its popularity would damage Mr. Cameron’s prospects for re-election in 2015.

A key question will be how the Conservatives respond to this challenge. The party’s right wing is already advocating a shift farther to the right to prevent more defections to UKIP. David Davis, who lost to Mr. Cameron in the battle to lead the Conservatives in 2005, advocated an early referendum question on whether Britain should quit the European Union. Mr. Cameron has promised such a plebiscite, but only after the next election — and implicitly only if he wins that election.

Other Conservatives will be arguing that it would be folly to tack to the right and leave the center completely open to Labour. Holding a referendum question on Europe before the election is not even practical politics, as the Conservatives are in coalition with the pro-European Liberal Democrats, who oppose such a vote.

British business, which has a vital interest in this debate, should make it clear that it wants the government to stick to the center. It would not help the economy to shift hard to the right on either immigration or Europe.

Look first at immigration. The economy benefits from having a moderately open approach to foreign workers, both in high-skilled and low-skilled sectors. Finance, information technology and, yes, plumbing are among the industries where Britain gains from imported skills. Immigration helps industry thrive and keeps costs down.

Within the European Union, there is freedom of movement for labor, with the exception of Romania and Bulgaria, where the last controls are to be lifted at the end of the year. This is a benefit, too, to the British, who are free to work anywhere in the 27-member Union. Immigration from the rest of the world is much more controlled.

There are worries, fanned by UKIP, about foreigners who move to Britain to enjoy free education, health care and benefits. But these are exaggerated. Immigrants tend to be younger, better educated and more economically active than natives. For example, a typical immigrant from Eastern Europe is 59 percent less likely to be on benefits than a British citizen, according to a study by the Institute of Fiscal Studies.

Immigration is therefore in most cases a good deal for Britain. And where this is not so, the answer is to make it harder for recently arrived immigrants to get access to benefits rather than to stop immigrants who genuinely want to work.

Now look at Britain’s relationship with the Union. The economy benefits hugely from being part of the single market, which accounts for nearly half its trade. The City of London also gains from having a hinterland for its financial services. None of this is to suggest that Britain does not also need to trade with the rest of the world. But Europe is a large, rich market on its doorstep.

That said, the Union is far from perfect. The economic model has been based too much on protecting people and companies from competition and not enough on encouraging enterprise, as parts of the euro zone, in particular, have discovered with a vengeance in recent years. This is not just bad for the euro zone; it is bad for Britain too.

Britain, therefore, needs to put its weight behind a campaign to make Europe more competitive. Although most of the work needs to be done at a national level, there are three supranational priorities.

First, the single market needs to be completed, especially in services, where Britain has a comparative advantage. Second, there needs to be a big push to cut free trade deals between the Union and other entities, especially the United States. Third, there should be a drive to create vibrant capital markets, based in London, to take the strain off the dysfunctional European banking system.

To be fair, Mr. Cameron started preaching some of this agenda in his European speech in January. But he also gave the impression that he wants to opt out of some European policies — a strategy that would reduce his chances of negotiating change with other national leaders, even if it appealed to his right wing. He also implied that not much would happen before the general election. But the sooner changes start, the better.

Part of the problem with acting sooner is getting the Liberal Democrats on board. But there might be a way of doing that. Why not focus on competitiveness now — something the LibDems ought to be able to sign up for — and leave any discussions on opt-outs until after 2015? Such an approach should certainly appeal to most of business more than tacking to the right in an attempt to negate the challenge from UKIP.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/05/06/business/global/06iht-dixon06.html?partner=rss&emc=rss